Only One Way? | San Francisco, CA, USA | Jan 2009

Yochai Benkler in Edge.org, The End of Universal Rationality:

We have a lot of sophisticated analyses that try, with great precision, to predict and describe existing systems in terms of an assumption of universal rationality and a sub-assumption that what that rationality tries to do is maximize returns to the self. Yet we live in a world where that’s not actually what we experience. The big question now is how we cover that distance between what we know very intuitively in our social relations, and what we can actually build with.

We’ve struggled with this assumption of “rationality” for years; it’s where the traditional assumptions behind the “rational actor” in economic theory have failed, it’s why we experience cycles of “innovation” and collapse as we create and re-create systems of economic organization and compensation; its why “bubbles” are created by the human condition, and it’s why we continually fail in our efforts to create masterful plans that actually work as we intend.

A research study into organizational design compared structures based on social dynamics to systems based on monitoring and controling people from “shirking”…

… and what’s understood to be the right thing to do [social dynamic] achieves much greater internal knowledge flows than setting up an effort to create incentives.

An example?

… executive compensation packages that emerged in the 1990s. If you look at the U.S. around 1980, its executives are making roughly the same multiple of what an aligned employee is making as European counterparts. Japanese counterparts making somewhat less. This is on the order of 30 to 50 times as much.

Fifteen years later, you see multiples of 200 and 500. Across the board. You get to a point where you look in the mid-2000s, and the CEO of GM is making more than the top 21 executives at Honda put together. But it’s theory-driven. You need to align the incentives just right, because otherwise, the person at the top will shirk. Well, the fact of the matter is we didn’t get this alignment.

We create plans, structures and systems based upon our ability to predict the future, and even through we’re continually wrong, we keep trying, emboldened by the opportunity, ignorant of the past, unaware of the long-term implications of our short-term decisions.

Reality rarely matches our predictions; not only are our prediction models poor, but they’re often based on the wrong underlying assumptions.

Few of us get the chance to live through meaningful moments of history and truly experience cultural and economic inflection points; the opportunity to influence the outcomes and help shape our future systems has never been larger. Let’s not waste our chance.

What’s the biggest issue you can address today? What’s the biggest issue your passion is driving you to solve?

And how can I help?