Was Einstein an idiot?

Geoffrey Manne —  4 January 2008

Well, obviously, not, of course, but he sure sounds like a thoughtless hack once in a while.

In a cafeteria near my office on the Microsoft campus, there is a sign near the door.  It’s a testament to something or other that I have no recollection at all what the sign is actually about.  But it shows a sepia-tone picture of a bridge being built from both sides of some body of water.  The traverse is almost complete, except that the the two sides don’t quite line up.  Oops.  In big letters above the picture is a quote from Einstein.  It says, “We cannot solve our problems with the same level of thinking that created them.”  I’ve never read a word of Deepak Chopra, but this is about what I imagine he or others like him would sound like.  Trite.  Persuasive to the relatively thoughtless.  And, well, idiotic.

But perhaps precisely because of its triteness and persuasiveness, this sort of thinking underlies an unfortunate amount of policy analysis and actual policy implementation.  Much to our detriment. 

Here’s the problem:  The statement doesn’t account for decision-making in uncertainty.  It doesn’t acknowledge that trade-offs are inherent in any planning.  It presumes that errors or bad results were caused by defective decision-making.  It doesn’t account for ex ante optimizing.  It thus fetishizes ex post consequences without considering that the very “best” level of thinking might still lead ex post to “bad” results. 

This defect is inherent in so much that is so awful in politics and government.  Enron went bankrupt?  Corporate governance is out of control! Pass Sarbanes-Oxley, quick!  Microsoft has a dominant position in the browser market?  The free market has failed!  Regulate the crap out of ’em!  Neoclassical economics doesn’t have a perfect explanation for why college students hoard coffee mugs?  Send in the behavioralists!  It’s all about positional goods!  Or availability cascades!  Or something!

Most antitrust enforcement–most regulation, full stop–has this post hoc ergo propter hoc sort of character.  Analysis of decisions requires analysis of institutions.  It requires an understanding of the economics of information and of uncertainty.  And most of all it requires a sense of humility.  Unfortunately, post hoc rationalization seems to be extremely persuasive with your average voter and I’ve never heard of a humble politician.

Ah, well.  Another year begins, and an election year, at that.  The news and the blogs will be full of calls for reform, calls to “do something,” assignments of blame, examples of alleged market evils, and examples of post hoc rationalization.  There will be a deficit of sensible institutional analysis and restraint.  It should be quite fun, actually.

 UPDATE:  John Tierney seems to have had a similar concern.

Geoffrey Manne

Posts

President & Founder, International Center for Law & Economics

2 responses to Was Einstein an idiot?

  1. 

    Geoff: brilliant post. I thought it was very well written, and nicely captured the gap between the decision and evaluation frames of reference.

    I saw this as a particular problem in my antitrust practice, where business decisions (always made in the presence of substantial uncertainty) were frequently evaluated after those decisions, combined with extrinsic factors, arguably led to some injury to another party. (A different, potentially more dramatic problem arises in merger regulation, where harm to competition is merely “threatened.”) Having moved to the context where the business decisions are being formulated, I’ve become even more sensitized to this issue.

    My sense is that this “defect” shows up with annoying frequency in the realm of antitrust law because of the confluence of two factors: (1) the business decisions being challenged typically were made in a context of substantial uncertainty, and (2) applying the standards of antitrust law requires applying vague standards to distinguish anti-competitive conduct from vigorous competition.

    What do you think? Is this a problem particular to antitrust, or are other areas of law and regulation as susceptible to this problem?

  2. 

    While you criticize this and that, most of what you say is pretty incomprehensible. Maybe it requires more than an einstein to understand your genius!!
    “It thus fetishizes ex post consequences without considering that the very “best” level of thinking might still lead ex post to “bad” results.”
    I rest my case.