Regression to the Mean

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When you’re in school you’re rewarded for being right.  If you get all of the questions right on a test you’re rewarded with a perfect grade, but once you leave the confines of an academic environment being right is less important.  This past election got me thinking: does it really matter if you’re right anymore?  I remember watching the foreign policy debates during the GOP primaries and seeing disgraced GOP officials from the Bush administration asking the candidates questions that were based on an ideological premise that most of the electorate would disagree with.  Yet this was a party that had a legitimate chance of winning the Presidency.  Many Americans viewed the election as a referendum on President Obama and because it was viewed that way it became a popularity contest.  When given the choice of someone who had to work their way up through life and a glorified plutocrat whose only major achievement was providing the model for the President’s signature health care legislation the choice seemed simple and for many Americans it was.

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You don’t want to trust your future to a CEO regardless of how you feel about minorities.  The answer for many Americans was simple, yet there were still ideological purists out there that were making the argument for policies that have failed us for decades.  The trickle down approach to economics – a policy that failed in the 1980’s, failed during the Bush administration and would have failed again – was the platform that the party ran on.  They ignored facts and figures about economic performance (even when the research was conducted by their own economists) and instead argued that from an ideological perspective they simply could not justify spending more money at the federal level unless it was going towards weapons systems that are out of date and will never be used on the battlefield.

Many in the mainstream press were given a free press on loaded questions and we were told that we should give equal balance to Fox News as we do to CNN.  As two seasoned political scientists point out: the arguments being put forth by the two sides should not be given equal weight.  The reason that this is the case is because one side is just plain wrong and the other is not as wrong.  In other words, one side is knowingly misleading you while the other side is at least attempting to do due diligence in the fact-checking department.

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When you step into the real world however there is little, if any difference between the political world and the business world, which is why, I would argue that Mitt Romney got away with telling an awful lot of lies during the campaign.  When you’re in school you get rewarded for being right, but when you enter the business world it becomes a system of trade-off science.  Trade off science basically says that you operate within systems of choices.  Most of these systems involve either or scenarios or situations of cost benefit analysis.  I would argue that our schools do a terrible job of preparing us to deal with these situations and systems.

In academic environments there’s a carrot and stick approach where the stick is used disproportionately more than the carrot despite the fact that positive reinforcement mechanisms are proven to work much better than systems of rigid discipline. But try explaining that to a teacher and you’ll likely be in for a long day.  The reason for this is that our intuition tells us that negative reinforcement always yields a response whereas positive reinforcement is seen as a system that inevitably leads to regression.  This is because it is counter-intuitive to apply the “regression to the mean” model to these situations.  In his book Thinking Fast and Slow, Daniel Kahneman argues that “the feedback to which life exposes us is perverse.  Because we tend to be nice to other people when they please us and nasty when they do not we are statistically punished for being nice and rewarded for being nasty.”  This is a nice way of saying that negative reinforcement methods promote bullying.  Furthermore, Kahneman argues that it is luck and talent together that lead to success and that success is as tied to luck as it is to talent.

I would argue that one of the main reasons that employers have problems filling certain positions is because they’re looking for the wrong things.  Take the local finance minister for instance.  He left his job after nearly thirty years on the job and now the central committee wants to replace him with someone with tons of on the job experience, a CPA and an MBA in Finance.  Even if such a person existed what is the likelihood that they would want to become a government bureaucrat?  As one of my Conservative friends says: “I have nothing but the utmost respect for government workers, but their jobs should be eliminated.  Their job is to find creative ways to waste my tax dollars and then sell their ideas to me as something other than wholesale fraud.”  Obviously, I disagree with him and everything he stands for, but he does raise a point when it comes to the perception of government in that our perception of it is not very good.  Furthermore, why would someone with lots of experience in finance, a CPA and an MBA take a job in municipal government when such a person could easily take a private sector job that would pay exponentially more?

If you’re looking for someone to weigh spending priorities and policy options what you want is an economic policy expert.  That’s what economists do, they weigh the costs of action v. inaction, the costs of doing option A as opposed to option B, C, D or E.  This is a classic example of someone hiring for a job that they essentially know nothing about.  Ideally, the person leaving the job would be the person to at least come up with the requirements for their potential replacement if he was unable to do the interviews of his potential successors himself.  However because the hiring and firing process is not based on merit this system has no realistic chance of being implemented.

Companies look for what I call “paper candidates” when they’re hiring.  Hiring managers are no longer the first people to see your resume.  That job has been outsourced to a machine.  So plenty of potential good employees are filtered out because they didn’t write a great resume.  Companies are now treating the science of writing a great resume as if writing great resumes were a vital part of the job they are hiring for.  It is here that the absurd dances of dating and hiring overlap.  Both use completely arbitrary means of testing people for something that really should boil down to performance.  In the job market it should be what you offer against what you will need to do on the job.  In dating it should boil down to how we function within the context of a relationship not how someone perceives and judges us individually.

The only jobs that reward being right over other factors are market analysts and hedge fund gurus and even their numbers are usually handicapped.  We often forget that there is a social dynamic to being right.  In school you might get picked on or even beat up on the playground over this issue.  The concepts of “street smart” vs. “book smart” are given weighted importance depending on which social group you travel in while in school.  Indeed, from the time we are in kindergarten to the time we’re in a retirement home people will judge you based on how right you are.  They will form opinions about you based on how right you are.  In some circles, being right is important, but in most it is not.  In fact, in many circles it is deeply frowned upon for a variety of reasons.  Part of it is control.

Every group has a leader and leaders are careful not to allow people they can’t control into the group.  Another part is perception.  Not everyone wants to be seen with the smartest kid in the class because most people don’t like the smartest kid in class.  Regardless of the component parts there are myriad reasons why being right really doesn’t matter anymore.  So, why do we care if we’re right?  There’s a certain feeling that one gets from being right.  It shows that they saw something that others did not and it makes them feel important if only for a moment.  This is what compels gamblers to keep gambling.  This is, at least in some cases, what fuels alcoholics to keep drinking.  Drinkers want to feel like they’re at least as good if not better at holding their liquor than those they’re drinking with.  Being right is about more than a feeling, oftentimes it boils down to ego.  Whether you can stand down if you need to save face can often tell as much if not more than being right ever could about someones character and intelligence because doing so displays not only sound judgment but the ability to think ahead and those are the qualities that employers should be looking for.

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