Francis Paschal
When I was a first-year law student at Duke many years ago, my Civil Procedure professor was the delightfully named J. Francis Paschal. Professor Paschal seemed to like to portray himself as a bit of a good ol’ boy, with a protruding gut, truly dreadful sports jackets, hair slicked and parted just off-center, and a drawl as thick as molasses on a cold day (if not nearly so sweet). That image could not mask a keen mind and a sharp wit. Nor did it hide his erudition — in addition to his credentials in the law, Professor Paschal had a Princeton Ph.D. too.
The good professor led his classes using the Socratic conventions of the day. A student was called upon to answer a series of penetrating and perplexing questions supposedly designed to ferret out the nuances of some legal principle or another but which, in reality, served to demonstrate to a class full of bright and full-of-themselves college graduates that they were out of the minors and into the intellectual big leagues. If we were going to compete at that level, we needed to up our collective game considerably.
One day fairly early in the first semester Professor Paschal called on a woman in the row ahead of me (who I shall kindly refer to — using a pseudonym since she is now a Deputy Attorney General — as “Frieda Clancy”) and asked a typically impossible question. SInce Frieda was a friend, I happened to know that her extremely difficult predicament was actually utterly impossible because she was not prepared for class. In fact, it wasn’t just that she wasn’t fully prepared (meaning that she had read the required case, all the cases cited therein, the case comments, casebook notes and citations, relevent hornbook and law review materials and anything else we could think of that might be relevant). She wasn’t prepared at all. She hadn’t even read the case at issue.
This was not likely to turn out well.
After Professor Paschal had posed his complex interrogatory, as was his wont, he leaned into his lectern, smiled grimly, and peered at Frieda with a look that seemed a mixture of bemusement and contempt. The pause was as deafening as it was long. Finally, Frieda stuttered out a reply.
“I-I-I’m n-not sure.”
The following pause was longer still. Professor Paschal leaned further into the lectern and placed his right elbow thereon while resting his chin on his hand, head cocked to one side. A thin smile insinuated itself into at least one corner of his mouth.
“Weeell, Miss Clancy,” he bellowed, “you might start by tellin’ us jus’ what it is you’re vacillatin’ be-tweeeeen.”
Which brings me to today. As Pro Publica and This American Life have reported, after the 2008-2009 financial crisis, the New York Fed commissioned a study of itself to try to understand why the Fed hadn’t spotted the behavior of the big banks that led to the crisis.* The Fed should hire “‘out-of-the-box thinkers,’ even at the risk of getting ‘disruptive personalities,’ the report said. It called for expert examiners who would be contrarian, ask difficult questions and challenge the prevailing orthodoxy. Managers should add categories like ‘willingness to speak up’ and ‘willingness to contradict me’ to annual employee evaluations. And senior Fed managers had to take the lead.”
Had the Fed wanted to fix this cultural problem, as Michael Lewis points out, it “would instantly have set out to hire strong-willed, independent-minded people who were willing to speak their minds, and set them loose on our financial sector.” I have regularly proposed that very concept for any organization, especially because it’s so easy to go along to get along. Quite apparently, the Fed has not done a very good job of implementing the recommended changes, if it even tried.
There is a wide body of research on what has come to be known as motivated reasoning and its flip side, confirmation bias. Confirmation bias is our tendency to notice and accept that which fits within our preconceived notions and beliefs, while motivated reasoning is our complementary tendency to scrutinize ideas more critically when we disagree with them than when we agree. We are similarly much more likely to recall supporting rather than opposing evidence. Upton Sinclair offered perhaps its most popular expression: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”
The Fed report (and today’s big Carmen Sagerra story, even bigger than the juicy news about Bill Gross) demonstrate the difficulty (on account of regulatory capture) in overcoming these tendencies at the Fed and on an institutional basis generally. According to Danel Kahneman, organizations are more likely to succeed at overcoming bias than individuals. That’s partly due to resources, and partly because self-criticism is so difficult. Perhaps the best check on bad decision-making we have is when someone (or, when possible, an empowered team) we respect sets out to show us where and how we are wrong. Within an organization that means making sure that everyone can be challenged without fear of reprisal and that everyone (and especially anyone in charge) is accountable.
Even (especially!?) at the Fed.
But that doesn’t happen very often, as today’s story shows ever so clearly. Kahneman routinely asks corporate groups how committed they are to better decision-making and if they are willing to spend even one percent of their budgets on doing so. Sadly, he hasn’t had any takers yet. Smart companies should take him up on that challenge of course. So should the Fed.
In addition to the challenges outlined above, individuals also face the most pernicious of the various behavioral and cognitive difficulties we all face — our tendency to think that such common foibles don’t apply to us personally. That’s why overcoming these inherent weaknesses is so beguiling. Is there anything practical that individuals can do to improve their decision-making? If we are to have any chance of making better decisions, we need to have a richer and more complete understanding of the various questions, issues and opportunities we face. We need a fuller comprehension of jus’ what it is we’re vacillatin’ be-tweeeeen.
As I have noted before, and consistent with the academic literature, critical thinking is impossible without sufficient subject matter expertise; and such expertise mandates the understanding of the strengths, weaknesses, subtleties and consequences to all the underlying positions and viewpoints relating to a particular decision. We all love to be right and quite naturally think we are right. Better decision-making means challenging assumptions like that by carefully asking and considering overlapping questions such as the following. Can you suggest others?
- How might I be wrong?
- Have I considered the strongest renderings and arguments of opposing viewpoints?
- Have I given opposing views a fair hearing?
- Have I checked and re-checked my work, data and assumptions?
- What does the available data say and suggest?
- What would it take to convince myself otherwise?
- What do I have to gain (or lose) by changing my mind?
- What do the (other) experts say?
- What do I see/know/get that those who disagree with me don’t?
- What’s in it for me?
- What’s in it for them?
- What do my best and smartest colleagues (friends) say?
- Have I considered the most generous versions of opposing arguments?
- Can I argue the other side effectively?
Perhaps the key question is this one: Do I fully understand the most powerful elements of opposing viewpoints? Here’s a hint toward the answer: If you think those who have come to a different conclusion are stupid, delusional or evil, you probably don’t. Ask probing questions today and everyday about even your most cherished views, beliefs and assumptions. Answer such questions as carefully and fully as you know how. Always take great care to understand “jus’ what it is you’re vacillatin’ be-tweeeeen.”
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* What makes this news today is the remarkable story (Pro Publica print version and the This American Life story) of Carmen Segarra and Goldman Sachs that demonstrates unequivocally what we all already suspected — that the Fed routinely cow-tows to the big banks.
Above the Market 