SI301 – Chapters 9 – 12 Suroweicki Notes

Chapter 9 (173)
Columbia – January 21, 2003
Challenger memos – one person wrote an ignored memo. A minority voice was drowned out.
“… not much we can do about it”. (174)
small group judgments are more volatile and extreme (176)
confirmation bias – we seek information that confirms that which we already believe (178)
small groups emphasize consensus over dissent
absence of debate and minority opinions
NASA is meritocratic – but also hierarchical (182)
In small group, leaders must take active role in insuring everyone speaks
Lack of *cognitive* diversity at NASA (183)
A minority viewpoint improves group deliberation even if it is wrong
Group polarization (189)
Social comparison – if the group moves right you do too to maintain your place in the group
Talkativeness makes one influential – not necessarily well liked – but listened to
The one who talks the most is viewed as right, although that isn’t always true
Chapter 10 – Companies (192)
Zara – Agile Clothing manufacturer form Spain – 10-15 days elapse from design to shelf
Less wasted markdowns
Links from stores to designers – quick market feedback – adjust manufacturing
Zara factories for materials and cutting
Small craft shops for the actual sewing – Galicia and Northern Portugal (194)
Coordination happens without control because of the market.
Why do corporations exist? (195)
Reduce transaction costs – bid out, track and coordinate, evaluate, pay
Also some things ate the “secret sauce” – Zara manufacturing plants were central to agility – it is not always about cost
Independent films – gather – work – scatter – used books
Gangster examples (198)
Classic corporations (200)
Many layers power from the top down
Came from factory pattern where line workers were really dumb
Lip service for decentralized decision making (202)
Often – lots of talk and meetings were seen as evidence of distributed decision making
Structure stops disagreement – someone might be a future boss or enemy – play the game (205)
Chances of promotion improved if you did not tell the boss bad news – stay in good graces (205)
Lack of cognitive diversity of top managers (206)
The illusion of perfectibility (208)
Targets and bonuses (209) Pay people to lie!
Does the Deli owner get more money when they “exceed expectations”?
In top-down corporation – there is no incentive to reveal private information. Markets cause information to be revealed – when used in particular. WHich increases knowledge (209)
People with local knowledge are often best suited to making decisions (212)
Linking authority and responsibility – Chuck
Experiment – Problem solving with noise and a button to stop the noise.
CEO’s as superheros / saviors – common workers look to upper management as being the final word (217)
Gary Wendt – GE Capital – Conseco (218)
Is it luck? Travelers leave Chicago with only one road with a gas station. Was the person who picked that road smarter?
Best CEOs – recognize their own fallibility. Alfred Sloan GM – Jack Welch GE
They built an environment / ecosystem – and set values so Wisdom of Crowd could work (222)
Chapter 11: Markets (224)
Short Sellers – Hated!
They gain when everyone else is unhappy – so folks blame them
Blamed for the crash of 1929 – but it turned out to be the long buyers that whipped the prices up to the point where they were wrong and then it all popped
Only 2% of the trades are short (227)
Massive PR all aimed at the market going up up up (227)
JS thinks there needs to be more, not less, short selling to reveal information
The pain of loss is much greater than the joy of gain – so folks hold stocks – because if it goes back up – they avoid the pain of loss
Stock prices jump around far more than IEM or NFL betting – and the crowd rarely flips (236)
Chuck: Cascade effect of rare flips??
Stock market just keeps going – we never know if we “win” or “lose”
Long Term Capital Management (LTCM) (237)
Pick pairs of slow/stable investments that track each other
When one is slightly off – buy it and sell when things rejoin
Buy on margin to magnify gains
Assumption: When prices deviate – they come back “quickly”
Problem: If prices don’t come back – because of the margin time runs out qiuckly
Ultimately: Each market is too small – when LTCM wanted to sell things freaked out
Chuck: Sometimes you need to just switch strategy – “cascade”
Bowling (241)
Things went well – cascade growth – then a crash
Small localized bubbles happen all the time – folks fancy something
Bubbles don’t happen in a real economy (245)
When prices go up – usually demand does not go up
Coffee “shortage”
Australian hurricane wipes out banana trees
Stocks are expected to grow
People tend to pick the stocks that will grow more – not so much about intrinsic value – which feels best – like a horse race
Bubble of the 1990’s CNBC (252)
A stock price would be affected within 15 seconds of being mentioned on CNBC
Bubble creation is like riot creation (257) Needs a spark and then a bit of influential folks nearby – to make it seem like a big trend
Chapter 12: Democracy (259)
Voting affirms partisan preference rather than an attempt to affect the outcome of the election (284)
Conservatives without health insurance opposed national health care – liberals with health insurance supported health care (265)
Government is like a big cooperation problem
Democracy is often not getting what you want but trusting that things will be generally OK