 The best-seller Freakonomics
by economist Steven Levitt and journalist Stephen Dubner never mentions
the word "complexity" in its 200+ pages of entertaining correlation
analysis, but at its heart it is a book about complex adaptive systems,
and about the consequences of our reckless passion for treating them as
merely complicated. In fact, it's more about statistics and social
studies than it is about economics.
As a reminder, the difference between complicated and complex systems
is that only the former are completely knowable, analyzable, and
subject to rigorous cause-and-effect analysis. Complicated systems are
the left-brainer's dream: To decide what to do all you need to do is
identify all the variables, determine which causes which (using root
cause analysis), draw systems thinking
diagrams to depict the relationships, assess the possible points of
intervention that could lead to a different and desired result (e.g.
turn a self-reinforcing vicious circle into a virtuous one), recommend
those interventions and collect your fee. Very scientific, and lots of
fun. Unfortunately, in the modern world, complicated systems are fairly
rare.
Complex systems are the rule, and they are not completely knowable or
analyzable because the number of variables is essentially infinite, and
hence the consequences of any particular intervention are largely
unpredictable. You need to use a more sophisticated, less scientific
approach when you're dealing with complex systems, and be more
tentative in your assessments. Freakonomics
deconstructs some of the many erroneous and dangerous assessments we
tend to make, and actions we therefore take, when we treat complex
systems as merely complicated. Its authors tell us "look beneath the
surface" to discover the complexity within, and the concept is
represented on the cover as an apple with the (unexpected) insides of
an orange.
Dave Snowden tells us
that the approach to complex systems is "probe, sense, respond" in
contrast to the "sense, analyze, respond" approach appropriate for
complicated systems. Analysis is futile, but that doesn't mean the
probes beneath the surface can't provide us with useful and compelling
information that can allow us to act in a way that will most likely be
helpful and positive. Dealing with complex systems requires pattern recognition, Snowden says. Our long-term memory has a capacity of
about 40,000 patterns (models, archetypes, plans, idealizations and
other representations of reality), and when we see, hear or otherwise
pay attention to something we only perceive and internalize the 5-10% that resonates and is consistent with those patterns,
that understanding of reality. There is evidence that until someone
creates a mental pattern for a phenomenon, they are unable to 'see' it
at all. And once a pattern has been set in the brain, it becomes very
difficult to dislodge. So when we see what looks on the surface like an
apple, we can't even conceive of it being an orange inside. Freakonomics probes deeper than we normally do, challenges any
assumptions about causal relationships (since those assumptions may be
oversimplifying complex systems as merely complicated ones), and looks
for the patterns that the rest of us can't or don't see. Some examples:
- The cause of the recent drop in the US crime rate can be
explained by four things, but despite scholarly works to the contrary,
innovative policing practices, gun control laws, capital punishment,
gun buybacks, a strong economy and an aging population aren't among
them. The largest contributor to the drop in crime rate was Roe vs Wade. Read the book to find out why (and contemplate the consequences if Bush stacks the supreme court to overturn it)..
- Money doesn't buy elections. While having money might
secure you the nomination of a major party, once you've got the
nomination the amount you spend against your opponent has no bearing on
your likelihood of winning.
- There is overwhelming evidence of cheating by teachers as
well as students in No Child Left Behind standardized tests, and also
overwhelming evidence of performance-enhancing drug use in many sports,
including (although the book does not provide details) the Tour de
France.
- Your child is 100 times as likely to suffer harm visiting
the home of a friend with a swimming pool than one with a gun in the
house.
- While the per-mile death rate of driving is much higher than that of flying, the per-hour rate is about the same.
- Your young child is less likely to be harmed in the back
seat with a seat-belt than in the front seat with a car seat; in fact,
neither car seats nor cribs have any significant impact on the
incidence of harm to children.
- While who you are
as a parent (your genes, and perhaps your passion and your example) has
a significant effect on the chances your children will succeed in life,
what you actually do with your children (including reading with them) does not.
Some of these findings are provocative (in fact the first and fifth
have created a lasting furor). But the authors are not attempting to
argue causality here, or even
about the wisdom of doing certain things. They are probing, using
correlation and regression techniques applied against huge amounts of
data, to show what correlates with what,
and in the process debunking a lot of myths about causes of and
remedies for a lot of problems in our society. What they are doing is
eliminating as many factors as possible, so that they can say with
reasonable assurance that all other things being equal,
there is a very high, significant correlation between X (e.g.
availability of abortion) and Y (e.g. subsequent declines in crime
rates) -- or that there is not. Draw your own conclusions.
The authors are great believers in another principle of dealing with complexity -- the importance and value of attractors and barriers (which Freakonomics calls incentives and disincentives) in bringing about desired actions or behaviour change.
They believe you can learn a great deal by studying which attractors
and barriers actually work in other situations (by 'work' they mean
that the introduction or existence of attractors and barriers, whether
natural or man-made, correlates powerfully, all other things being
equal, with a subsequent desirable behaviour change. The attractors and
barriers to jobs, for example, largely determine who goes into
different fields, and two attractors (that it requires specialized
skills you have, and that it is in high demand) and two barriers
(excessive supply and unpleasant working conditions) correlate most
with what the job pays. That's the reason why, the authors say, most
crack dealers still live with their mothers (excessive supply of
applicants for the job) and why prostitutes earn more than architects
('danger pay', higher demand and relative shortage of supply).
But they also warn against the failure to consider all of the
alternative variables that might have led to that condition or
behaviour. For example, children with certain names tend to end up with
significantly higher education and income than others, but that doesn't
mean giving your child one of these names will make their life easier.
In fact, the propensity to give your child certain names correlates
with a variety of other factors (such as your own education and income)
which in turn correlates with your child's success. Be careful about
jumping to conclusions.
There are two remarkable quotes in the book. The first is this one by
economist John Kenneth Galbraith about the follow of 'conventional
wisdom':
We associate truth with
convenience. with what most closely accords with self-interest or
personal well-being or promises best to avoid awkward effort or
unwelcome dislocation of life. We also find highly acceptable what
contributes most to self-esteem. Economic and social behavior are complex,
and to comprehend their character is mentally tiring. Therefore we
adhere, as though to a raft, to those ideas which represent our
understanding.
The next quote, on the very next page, is by Paul Krugman and provides a perfect example of Galbraith's point:
The approved story line about Mr.
Bush is that he's a bluff, honest, plain-spoken guy, and anecdotes that
fit that story get reported. But if the conventional wisdom instead
were that he's a phony, a silver-spoon baby who pretends that he's a
cowboy, journalists would have plenty of material to work with.
So, say the authors, we must be wary of conventional wisdom, skeptical until and unless the data strongly supports what we are told or what we believe.
Thanks to the Internet, they say, some of the 'information asymmetries'
that lead to unsupportable conventional wisdom are disappearing. But
what Malcolm Gladwell calls 'learned helplessness'
is still with us -- our inability to go beneath the surface, challenge
and debunk conventional wisdom or instinct leads us to dysfunctional
beliefs and actions: That we're safer in an SUV than another vehicle,
for example, or that we should spend more money and effort trying to
prevent terrorism happening in our countries than we spend trying to
prevent common bacterial and viral infections, for example.
And if we want to bring about real change, we need to consider what attractors and barriers we can influence that will really affect behaviour. Those attractors and barriers can be economic (e.g. a tax shift that encourages domestic employment and penalizes waste of non-renewable resources), or social (e.g. an award or promotion, or incarceration for breaking a law), or moral
(e.g. an appeal to our sense of fairness, or right and wrong). The
authors also recommend what they call 'bright-line' attractors and
barriers (those where the attractions and constraints are very clear)
over those that have consequences that are 'murkier' (less clear or
less certain).
Let's suppose we want to bring about a significant drop in birth rates worldwide. First, we would need to probe to find out why
they are currently as high, and as low, as they are. We could offer
economic incentives to have smaller families -- though we should start
by studying whether we already have them (studies suggest that,
worldwide, women have on average almost one child each fewer than they
would like, and cite the cost of having children as the overwhelming
reason for that decision). We might offer social incentives for smaller
families -- like awards or special opportunities available only to
childless couples. Or we might offer moral incentives for smaller
families and disincentives for large ones -- by pointing out how much
large families contribute to our unsustainable way of life, or by
having leaders and the media publicly repudiate the reactionary pope
and other religious leaders who encourage large families, and suggest
that the followers of such religions are weak and irresponsible. Levitt
and Dubner would have us believe that these would be far more likely to
work than political or educational methods.
But alternatively we could look at the reasons why current birth rates
are where they are now, and identify incentives and disincentives that
might address those reasons
rather than the decision on how many children people choose to have
directly. The financial pinch motivation isn't a helpful one -- there
are no attractors or barriers we can use to exploit it, short of
deliberately trying to plunge the world into an economic depression
(and Bush and Greenspan are working hard at that). In the third world,
many women claim they have large families because, in the absence of a
social safety net, it's the only way they can hope to make ends meet in
their senior years (and in many cases, the only way they can make ends
meet period -- children are the only assets they have). Now that's
something we can do something about: By providing incentives to third
world countries to provide universal health care, education, old age
pensions and social assistance programs for their citizens, we might
dramatically reduce family sizes in the third world quite quickly. Of
course, we'd need to confirm that such incentives actually work, but we
could do that by studying planned and actual family sizes in countries
that have significantly improved social services, controlling for other
variables. And we'd need to look at the fact that, regardless of what
they might say, the first and (to a lesser degree) second generations
of immigrants to countries with comparatively good social services
continue to have a large number of children, and understand why that is.
The point is, the means to bring about change is hiding there in the
information in that orange beneath the apple peel. And while many
readers have found Freakonomics
either entertaining or outrageous, and are focused on the specific
examples in the book, the real importance of this book is that it lends
credence to complex adaptive systems approaches to understanding why
things are the way they are, and how they might be made better --
through mechanisms that, when we fail to look below the surface and
allow ourselves to be blinded by conventional wisdom, we might never
have considered.
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