Wednesday, July 8, 2009

Counteracting Biases

While catching up on Overcoming Bias posts, I've been trying to figure out the best way to teach methods of counteracting biases. If I had to boil it down into one or two pieces of practical advice for students, what would I recommend?

One big point is to own our fallibility. Awareness of our limits and biases is a huge step in the right direction. Here are two other big, simple points I think are important:
  1. Actively seek out sources that you disagree with. We tend to surround ourselves with like-minded people and consume like-minded media. When we do check out our opponents, it tends to be the obviously fallacious straw men rather than sophisticated sources that could legitimately challenge our beliefs.
  2. Focus on the best points in the arguments against what you believe. Our opponents' good points are worth more attention than their obviously bad points. Yet we sometimes naturally focus on their mistakes rather than the reasons that hurt our case the most.
Point #1 in particular is tough for me: as you can see by my feed, I mostly read stuff from like-minded people: philosophers, psychologists, and economists working on decision making, heuristics, and biases. To this extent, I'm probably more likely to think that these issues are more important than they really are. What contrarian sources can I check to counteract this?

Wednesday, July 1, 2009


Are CEO's paid too much? I have done hardly any research on this topic, but it's interested me since teaching a section on it in a Business Ethics class last fall.

The main insight I gained then was the similarity between the inflated pay of CEO's and star athletes. There's been a rapid rise due to a small minority of shareholders/owners overpaying for a few CEO's/athletes, which has inflated the competitive value for similarly skilled CEO's/players. This ratcheting system doesn't seem financially justifiable for two reasons: (1) top CEO's/players today probably aren't 10 times more valuable than top CEO's/players from 50 years ago; and (2) top CEO's/players probably aren't 100 times more important to their organization than the average employee/player they work with.

Let me own my ignorance, though: I took most of this on the word of one of the two articles our class read from a bad textbook, so my confidence in this analogy has been low.

Still, I read an article recently that partly confirmed my diagnosis that the root cause of the increase in CEO pay is the ratcheting from unrepresentative "peer-group comparisons" of similarly qualified CEO's at other companies. For some reason, overpaid peers stand out more. (Unfortunately, the article reads like a press release from a lobbying organization. That automatically makes me skeptical.)

Robin Hanson, however, makes a different case for the wage inequality. He compares CEO's to actors and musicians by focusing on the high cost of trying out new CEO's, along with the prevalence of short-term deals. The few short-term winners renegotiate at much higher terms, and are free to continually renegotiate their salaries into the stratosphere. Hanson suggests agreeing to more long-term deals at the beginning to help solve this problem.