The Decision Strategist

A significant amount of my profession involves working with small towns to examine economic issues. These are issues that are probably familiar to all of you because they are the same for every small resort town:

• Youth leave because there are few economic opportunities and the big cities are more exciting, or to attend college in the big city.
• Real estate is priced far beyond anything that is affordable to local residents. Only wealthy immigrants can buy houses.
• Costs are extremely high.
• Arts and tourism are a significant, if not the main, source of income for residents.

The result of these issues can generally be described in terms of two major trends. First is the demographic shift brought on by the emigration of youth and the immigration of aged populations.

With the median age getting older, the towns focus naturally shifts to fulfilling the desires of older population and away from providing a better and more enticing environment for the younger up and coming generations.

The second major trend is the gentrification of the community. As the median income increases, low wage earners become more and more marginal, and end up relegated to the role of providing services for wealthier tourists and residents. These are jobs almost exclusively located in food services, accommodations and retail. The problem of residents not being able to buy real estate only intensifies.

The parallels with so-called “third world” countries are alarming.

Pursuit of Economic Growth

The strategies for economic growth are not qualitatively different except in minor aspects: pursue tourist-funded and export-led growth.

Depending on tourist spending as an economic engine has worked out fantastically for some countries and towns, but never without the problems mentioned above and what amounts to the institutionalization of a very poor working class that serves very rich tourists. I’ll leave it for others to argue whether this is an improvement over their earlier lifestyle.

A tourist-based economy is undesirable for at least two reasons: tourism is extremely fickle and dependent on economic fluctuations, and it locks the town’s economy into a single track that cannot be left without significant consequences.

As the world approaches a recession, small resort towns are clamoring to find out why their real estate sales are slowing and their tourist numbers are down. They think that it is a problem they can fix if they just market themselves more, or make the town prettier and more friendly, or (insert random improvement here).

What they don’t realize is that the last 8 years of tourism have been funded by first a tech bubble and second a housing bubble caused by extremely low interest rates financed by our tax dollars.

In essence, much of tourists’ perceived wealth was imaginary, and now it is leaving (I’m talking about house and stock-based wealth here, not true wealth).

Few small US towns export anything of significance except their youth. Export led growth usually makes people think of China. In some areas crops are a major export, and in others arts and crafts may be somewhat important.

The real truth being, of course, that America itself isn’t a net exporter of anything but marketing and design. It hasn’t been more than this for years, though the severely weakening dollar will likely change that somewhat.

But the real problem with tourism or export-led growth is that they are based on the same thing: inequality.

A Simple Sustainable Strategy for Growth

There is really only one way to sustainably increase the economic well-being of a community, and that is to increase the productive capability of the area.

I don’t mean this in the industrial sense of destroying the surrounding environment to build manufacturing ability, but rather to take steps to develop both the infrastructure and the productive ability of the workforce.

This is a slow process in which a community must consume less than it produces and invest the excess in greater capacity. In the US this is a completely foreign concept. Instead we focus on getting people to spend as much as they can.

In other words, we have unequivocally adopted a strategy of short term growth at the expense of long term sustainable gains.

This is the tragedy of democracies in general, but especially strongly pro-corporate democracies. Politicians are under pressure to produce immediate gains, and so sacrifice future gains to do so. Bush has pursued this strategy to perfection by both cutting taxes and spending an outrageous amount of money, ensuring that the economy stays afloat for a while, but the consequences when the party is over will be that much more painful.

Those of you who work in sustainable community development in small towns, I’d be interested in hearing your thoughts about how communities can pursue a general strategy of sustainable development. I’ll post your responses next week.

-zot

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By now you must have seen the news discussing Radiohead’s new album and their decision to shun record companies and release their record by themselves. In fact, they’ve decided to release it online and let people decide how much money to give them. Here’s the link.

Trent Reznor’s doing the same thing.

And then there’s things like Songslide, which lets bands add their music and users pay whatever price they like.

It’s more evidence of changes in the music industry and the failing tactics of the RIAA.

But what I find really interesting are the ways in which bands releasing their music for free are making use of referencing and priming to encourage people to spend money. Radiohead puts an empty price box in which you can put how many GBP’s you want to pay for the album and very little else. Not a lot of an attempt to make people pay more, but other artists do things differently.

There is one artist’s website I’ve seen that lets you pay a price you choose, but explicitly puts the ‘average’ price as one of your options, and tells you what that average is. It’s a great idea for two reasons.

First, having the average that people have given changes the reference point from $0 to a much higher value (I think it was usually around $10). Whatever you were considering paying gets referenced to this average, with the accompanying feelings of guilt (or getting a good deal) when you pay less and the possible pride in paying more. I could see the average backfiring by causing people who would pay more to just opt for the average, but my suspicion is that people not paying much of anything is more of a problem.

Second, it explicitly engages moral self judgment. If you pay significantly less than average, you are more likely to feel cheap or selfish. This self-watching, like pictures of watching eyes, has real effects on peoples behavior.

There isn’t any data on how much people pay for albums in this kind of setting yet, but it’d be very interesting to look at differences in payment based on how the interface for downloading is set up.

I’ve been trying to remember which artist does this, so if any of you know please tell me.

-zot

ps - I really like In Rainbows so far.

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Some loose research by Griffin and Tversky (Overcoming Bias) suggest that we can predict what choice we will make with about 96% accuracy. It’s based on people facing a decision about a job opportunity and predicting what they will choose.

There are some problems with this. Mainly that you may be fairly sure of your choice before you make the decision, and so of course you are accurate when asked to predict what you will choose. For choices for which you are truly conflicted, I think the rate of success may be lower.

Yet it still highlights that we make decisions unconsciously very quickly, and the rest of the rationalization process is unlikely to cause us to change our choice.

If decision making techniques don’t really work and we are predictable enough that we can predict our own decision, perhaps the best decision making technique of all is to imagine our future after the decision and try to predict which decision we will make (I know there are problems here, bear with me).

Sounds easy right?

In some cases it is. I’m trying to restrict my chai drinking to one time a week, but will I get some tomorrow? I’m betting yes. Will I sleep in instead of getting up early? Almost certainly.

But will I choose to go to the Peace Corps next summer? That one is much harder. If I had to bet…I’d say I will go, but if you asked me again in an hour, that might change.

Still…there is something to be said for decisive action based on first impressions. Great military leaders are almost always described as being very decisive.

For those of us in less immediate situations, a greater reliance on our first choice may still be a better process than being mired in doubt.

Something like Inkling Markets could be used to set up a prediction market for your actions…it’s not to far off from what I’ve been trying to create myself.

-zot

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Here are some more thoughts that tend to reinforce the idea that making decisions with less information is better. There was a small conversation a few days ago on the post Do Decision Making Techniques Really Work? in which we talked about the difference between maximizers and satisficers.

Maximizers are people who seek out every option and as much information as they can find before they make a decision. Satisficers perform only a cursory search for information and then choose an option that satisfies and don’t worry much if it is the best choice.

There are a fair number of resources on the web about this, including this article, which includes a list of questions to help you determine which type of decision maker you are.

There are also several books that talk about this idea, including The Paradox of Choice: Why More Is Less. It’s just one of a slew of books having to do with quirky behaviors that have been published in the last few years. You can see some of them on my Amazon Wish List.

Satisficers are supposed to be generally happier because they stress less over decisions and don’t beat themselves up about making the wrong one, but the distinction strikes me as somewhat arbitrary. Isn’t it likely that we are all satisficers and maximizers in different situations?

I mentioned a while back that people invest more effort in decision making when they care more about the outcome, a fairly intuitive statement. It seems likely that we shift toward the maximizer side of things when we are contemplating more difficult decisions.

I recognize the value of simple intuitive concepts, but in this case I suspect that the maximizer/satisficer metaphor is a false dichotomy of sorts. Aren’t there really a number of other dimensions we could add to this characterization? At the very least other two-dimensional scales like level of self-confidence or being impulsive or thoughtful could explain the behavior with similar results.

The difference here is a focus on the information collection process. The benefit of gathering more information follows the familiar logistic S-curve found in population growth and a million other things:

The first few bits of information add some value, but may do more to confuse than anything else. In the middle of your search additional information adds a great deal of value. But at some point you’ve exhausted all the options or saturated your brains ability to hold information, and additional information does little to help.

Maximizers tend to stop searching for information somewhere on the upper end of the scale, while satisficers stop searching for information somewhere north of the center.

The key for people who have trouble making decisions is to recognize when their information search is no longer contributing value and making the decision based on their knowledge at that point.

Not that this is a simple matter. Without knowing the complete set of information it’s hard to tell whether your next information search will yield something of great value.

Perhaps the maximizer’s drive for information is not unlike a gambling addiction. Maybe they continue their search because they are driven by the big score of information in the next turn, just as a gambler is driven by the hope of the big payoff in the next game.

This post is a little rambling, but I think my general point is that the maximizer/satisficer metaphor, while a useful idea, glosses over the real issue, which is how do you tell when to stop searching for more information about a decision?

-zot

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