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There is no one named "society" who decides anything. Even in the most democratic nations few issues are ever decided by a specific nationwide referendum. And even if they were, who could say that a bare majority as of a given instant constitutes the judgment of an organic society subsisting over the generations? Unless national laws are to vary literally from moment to moment, some decision-making units must make decisions which are binding on other units which either disagree or were not consulted. Posterity is of course never consulted. #37 в контекст | | |
One of the peculiarities of the American Revolution was that its leaders pinned their hopes on the organization of decision-making units, the structuring of their incentives, and the counterbalancing of the units against one another, rather than on the more usual (and more exciting) principle of substituting "the good guys" for "the bad guys"-i.e., substituting "the people" for "the oppressors," the faithful for the heathens, the Jews for the gentiles, the gentiles for the Jews, and other such substitutions based on differences of history, physiognomy, or mannerisms. #38 в контекст | | |
The domain of decision-making units need not be discrete or mutually exclusive. Indeed they cannot be either, or there would be no such social phenomenon as would cause us to refer even metaphorically to "society." Decision-making units seldom have complete control, even of a given segment of a society, and no decision-making unit controls the whole society, except very approximately under a totalitarian regime. Decision-making units overlap one another to some degree, and even where such units are subordinated to others in a hierarchy, the subordination is never perfect in practice. Even in the extreme case of slavery, the subordinate units took actions contrary to the general desires or specific orders of the higher units-ranging from passive or active sabotage to murdering overseers and slave owners.' The practical limitations of sheer subordination were repeatedly demonstrated by the various economic incentives which had to be resorted to under slavery, especially for getting higher quality work performed.' #39 в контекст | | |
In general, the ability of subordinate decision-making units to act independently of, and contrary to, the policies and orders of the higher units is based on differences in knowledge. The powers of the higher units may encompass all the powers of the subordinate units, but they almost never encompass all the knowledge. Because the powers of the higher decision-making units include the power to require transmission of knowledge, the persistence of knowledge advantages by the subordinate units implies either an impossibility or a prohibitive cost to the higher unit of independently acquiring the same knowledge as a check against the accuracy of the knowledge transmitted by the subordinate unit. In short, there are differences in their respective costs of acquiring knowledge. More specifically, there are cost differences between higher and lower decision-making units which vary according to the kind of knowledge in question. #40 в контекст | | |
General knowledge-expertise, statistics, etc.-is usually more economically used by the higher decision-making units. For example, a decisionmaking unit which encompasses five subordinate units can acquire a given expertise and statistical data which it applies to all five units, whereas if each unit had independently acquired the same expertise or statistical data it would have cost five times as much altogether. For this kind of knowledge, the cost advantage tends to be on the side of the larger and higher decisionmaking unit. But for highly specific knowledge-the local life style, the reliability of particular suppliers, the level of skill of a given executive, etc.-the subordinate units immediately in daily contact with the relevant facts can much more easily and more cheaply synthesize the knowledge and draw inferences. #41 в контекст | | |
It is unnecessary to attempt any general rule as to where the overall balance lies in comparing the respective costs of knowledge in larger and smaller decision-making units. What is important is to understand that (1) the respective cost advantages of the large and small units differ according to the kind of knowledge involved (general versus specific), that (2) most decisions involve mixtures of the two kinds of knowledge, so that the net advantages of the larger and smaller units vary with the kind of decision, and (3) the effectiveness of hierarchical subordination varies with the extent to which the subordinate unit has knowledge advantages over the higher unit. In those cases where the subordinate unit has better information, then in terms of the whole decision-making process the knowledge is one place and the power is another; the quality of decisions suffers as a result. Moreover, subordination itself becomes illusory to the extent that the lower level unit can use its knowledge advantages to evade, counteract, or redirect the thrust of orders from its nominal superiors. #42 в контекст | | |
Some examples from various institutions and various societies may illustrate these crucial points. Agriculture has its general principles and statistics, but agricultural production involves much highly specific knowledge about the characteristics and contours of particular plots of land, and about the freshness, flavor and keeping qualities of specific batches of fruits, vegetables and dairy products-all of which are changing by the hour. No expert can say from 100 miles away, and sight unseen, that this year's grape crop is good, or even that last week's good grapes are still good this week. By contrast, an expert on the manufacture of steel can specify the exact quality of steel that will be produced by given combinations of iron ore and coal at given temperatures. For these reasons, steel production has been successfully centrally planned and controlled in various countries, whereas agricultural production has had such chronic problems and periodic disasters in centrally planned economic systems that even the most centralized communist governments have had to make major exceptions in agriculture, allowing decentralized decision-making of various sorts. #43 в контекст | | |
For similar reasons, in capitalist countries it is common to have chains of grocery and department stores selling standardized items, but there are no large chains of high quality restaurants of a sort which depend upon atmosphere and finely prepared food. Such restaurants require constant attention to the demeanor of the staff and the delicacy of the chef, and those cannot be effectively controlled by distant experts. Usually the owner and manager of a successful restaurant of this sort is right on the premises, often from the moment it opens each day to the moment it closes at night. By contrast, the top executives of Sears or Safeway cannot and need not be present at their hundreds of stores across the country, for much of the knowledge they need can be gained from statistics, experts, and accounting data. #44 в контекст | | |
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While decisions are constrained by the kinds of organizations and the kinds of knowledge involved, the impetus for decisions comes from the internal preferences and external incentives facing those who actually make the decisions. The incentives may be positive or negative-that is, rewards or penal ties. Typically, these incentives are structured in some way, so that there are gradations of rewards (or penalties) corresponding to different kinds of results. It is not just a question of being rewarded or not, but of how much reward or penalty is likely to follow from various decisions. Simple as this seems, it is a radical departure from the practice of explaining decisions in terms of "society's" choices or in terms of the official or ostensible "purpose" of an organization. An organization may make decisions which fail to achieve its assigned purpose or fail to serve society's interest, without any "failure" of understanding or ability, simply because it is responding to the actual structure of incentives confronting it rather than to the rhetoric or hopes of others. #46 в контекст | | |
Much criticism of "incompetent bureaucrats" implicitly assumes that those in the bureaucracy are pursuing the assigned goal but failing to achieve it due to lack of ability. In fact, they may be responding very rationally and ably to the set of incentives facing them. For example, government regulatory agencies are often very ineffective in controlling the industry or sector which they have a legal mandate to regulate. But it is a common pattern in such agencies for those in decision-making positions to (1) earn far less money than comparable individuals earn in the regulated sector, and (2) after a few years' experience to move on to jobs in the regulated sector. In short, they are regulating their future employers. Under such a set of incentives, it is hardly surprising that decision makers in regulatory agencies approach those whom they are assigned to regulate with an attitude that is sympathetic, cooperative, and even protective. The only protection of the public interest built into the incentive structure are the penalties for blatantly illegal conduct, such as taking bribes to make a particular decision for a particular company. But explicit bribes are seldom necessary in order to get the regulatory agency to adopt the general viewpoint of the regulated sector, in which many regulatory officials expect to make a more lasting and more lucrative career than is open to them in government. Morally, it is possible to deplore individual weakness or selfishness, but rationally there is little reason to expect a different outcome from a normal sample of people facing the same structure of incentives. Reform by "throwing the rascals out" seems less promising than reform by changing the structure of incentives facing whoever occupies decision-making positions. #47 в контекст | | |
The regulatory agency example is a case where the institutional incentive structure has to compete with an outside incentive structure that is more attractive financially. Incentive structures can have problems in themselves, aside from outside competition. The mere process of formalizing what is to be rewarded presents many complexities and pitfalls. Most problems, decisions, and performances are multidimensional, but somehow the results have to be reduced to a few key indicators which are to be institutionally rewarded or penalized: attendance records, test scores, output per unit of time, seniority, etc. The need to reduce the indicators to a manageable few is based not only on the need to conserve the time (and sanity) of those who assign rewards and penalties, but also to provide those subject to these incentives with some objective indication of what their performance is expected to be and how it will be judged. But, almost by definition, key indicators can never tell the whole story. This affects not merely the justice or injustice of the reward, but also the very nature of the behavior that occurs within the given structure of incentives. For example, one index of military success is the number of enemy killed. Clearly, it is not the only indicator, for if a major military objective can be taken while capturing the enemy, or confronting him with sufficient force to make him retreat, or bluffing him into withdrawal or surrender, this is even better than having to actually take the objective by storm, with a large loss of life on both sides. However, once the incentive structure clearly rewards the "body count" of enemy dead, it provides an incentive to more carnage than is absolutely necessary, and since enemy casualties can seldom be increased without increasing one's own casualties, it provides an incentive to needless bloodshed and loss of life among one's own troops. Again, moral condemnation without reform of the incentive structure means little. For example, continual criticism of the "search and destroy" missions of the American army in Vietnam did little to change this approach in a war where "body count" was a key indicator, used by the military high command in rewarding and publicizing its units' efforts. #48 в контекст | | |
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Key indicators require some specified time span during which they are to be tabulated for purposes of reward or penalty. The time span can vary enormously according to the process and the indicator. It can be output per hour, the annual rate of inflation, weekly television program ratings, or a bicentennial assessment of a nation. But whatever the span chosen, it must involve some simplification, or even oversimplification, of reality. Time is continuous, and breaking it up into discrete units for purposes of assessment and reward opens the possibility that behavior will be tailored to the time period in question, without regard to its longer range implications. Desperate efforts just before a deadline may be an inefficient expedient which reduces the longer run effectiveness of men, machines and organizations. The Soviets coined the term "storming" to describe such behavior, which has long been common in Soviet factories trying to achieve their monthly quotas. Similar behavior occurred on an annual basis in Soviet farms trying to maximize the current year's harvest, even at the cost of neglecting the maintenance of equipment and structures, and at the cost of depleting soil by not allowing it to lie fallow to recover its long run fertility. Slave overseers in the antebellum South similarly overworked both men and the soil in the interest of current crops at the expense of reduced production years later-when the overseer would probably be working somewhere else. In short, similar structures of incentives produced similar results, even in socioeconomic systems with widely differing histories, ideologies, and rhetoric. #50 в контекст | | |
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The broad sweep of knowledge needed for decision making is brought to bear through various systems of coordination of the scattered fragmentary information possessed by individuals and organizations. This very general sketch of the principles, mechanisms, and pitfalls involved is a prelude to a fuller consideration of the use of knowledge in decision-making processes in the economic, legal, and political spheres, each having its own authentication processes and its own feedback mechanisms to modify decisions already made. Much discussion of the pros and cons of various "issues" overlooks the crucial fact that the most basic decision is who makes the decision, under what constraints, and subject to what feedback mechanisms. This is fundamentally different from the approach which seeks better decisions by replacing "the bad guys" with "the good guys"-that is, by relying on differential rectitude and differential ingenuity rather than on a structure of incentives geared to the normal range of human propensities. #52 в контекст | | |
The discussion thus far has emphasized premeditatedly-formed and hierarchically-structured decision-making units. These are not the only, nor necessarily the best, decision-making units, nor even the most pervasive kind of decision-making units at a given time and place. Some alternative decisionmaking units and processes include (1) trial by combat, which is seldom sanctioned today for individual decision making, but is still the ultimate decisionmaking mechanism between sovereign nations, (2) various arrangements spontaneously evolved by the participants, such as competitive bidding in economic markets or mutual benevolence in groups bound together by religious, artistic, tribal, or other affinities, and (3) premeditated arrangements in which those subordinated to the power of others in one sense are, in another sense, the ultimate arbiters of the fate of their hierarchical superiorsas with democratically elected governments, or with governments operating in the shadows of their own military forces which are both willing and able to depose them. None of these decision-making processes are mutually exclusive. A typical American, for example, lives in a family unit whose internal decisions are based on personal feelings, works in a hierarchically-structured organization whose use of inputs and volume of output are determined in a spontaneously evolved market, is subject to laws established by a government whose members are chosen and removable by the electorate and which conducts its relations with other governments in an atmosphere dominated by their respective capacities for armed combat or mutual annihilation. #53 в контекст | | |
The interaction of various decision-making processes makes it all the more necessary to understand the respective principles of the different individual processes. The continual evolution of decision-making units and decisionmaking processes likewise makes it all the more necessary to understand the effects of different kinds of processes, so as to know where we are headed if current trends continue. #54 в контекст | | |
just as decision-making units and processes vary enormously, so too do the various kinds of decisions. For example, some decisions are binary decisions-yes or no, war or peace, guilty or innocent-while other decisions are continuously variable incremental decisions: using more or less gasoline, paying higher or lower wages, living a more relaxed or more hectic life. Some decisions are once-and-for-all decisions-suicide, loss of virginity, burning a Rembrandt painting-while others are readily reversible decisions: turning off a television program that is not interesting, cancelling a subscription, ceasing to purchase a given brand of consumer goods or ceasing to use certain cliches, etc. Decisions may also be made individually or as "package deals." One can buy onions, bread, and canned goods in the same store or in different stores, but in choosing between political candidates, one must choose one candidate's whole package-his fiscal policy, environmental position, foreign policy, civil liberties views, etc.-as against the whole package of his opponent's positions on the same subjects. #55 в контекст | | |
The kind of decision is not tied to the particular subject matter (i.e., shoes, food, or education) so much as to the particular decision-making process: economic processes, legal processes, political processes, etc. What this means is that as certain kinds of decisions are moved from one kind of decisionmaking unit to another, it is not merely a case of a different group of people or processes making the decision; the nature of the decision itself can change. That is, what was once a continuously variable decision may become a binary decision. Prior to public schooling and compulsory attendance laws, for example, the decision a family made was how much schooling to purchase for their children; afterwards, the only decision was whether or not to obey the compulsory attendance laws. Before it became a federal crime to carry a letter in competition with the post office, the individual letter-writer could choose among various possible carriers, but afterwards the only decision was whether to communicate in the form of a letter or in some other form. #56 в контекст | | |
Decisions also differ with respect to whether they are instantaneous or sequential. An instantaneous decision occurs completely at a given point in time, even if a long period of consideration preceded it, while a sequential decision occurs at various points in time as reactions to previous parts of the decision entail additional adjustments, improvisations, or reinforcements. The basic difference between them is that one decision is made completely on one occasion, while the other decision occurs piecemeal over a period of time. With sequential decision making, all the knowledge which is finally available to the decision maker is not initially available when the sequence of decisions begins, and the course of action followed may be wholly different from what it would have been if all the knowledge had been available at the outset, or if any decision could have been postponed until after all the facts were in. #57 в контекст | | |
Many early supporters of the Vietnam war came ultimately to the position that it was not worth the cost, after the full cost had been revealed by time, and that early official estimates of prospective casualties and prospective outcomes were either grossly mistaken or deliberately misleading. Another contemporary example of sequential decision making in a very different area is the progression from the Supreme Court's Brown decision in 1954 that the state cannot classify students by race for differential treatment to its controversial "busing" position in which that is what it requires states to do. Years of opposition to desegregation of the public schools led to progressively tighter judicial control, designed to overcome the various strategies of opposition, delay, and evasion-ultimately arriving at a point the opposite of the court's original premise or intention. In an earlier era, British Prime Minister Neville Chamberlain conducted a foreign policy designed to avoid war with Hitler through relatively small concessions, but the ultimate result of an unanticipated series of crises and concessions was to so shift the balance of power in Hitler's favor as to make war inevitable. #58 в контекст | | |
None of these sequential decisions was the result of a "society" that was stupid in the light of information now available in retrospect, but rather of piecemeal decisions which acquired a momentum of their own, and of the individual decision makers who were unequal to the unfolding complexities inherent in sequential decision making. Praise or blame is not the point. What is important is to understand (1) when a situation facing us is part of a sequential decision making process, and what that implies, and (2) to understand when our own institutions set up sequential decision-making processes when there is an alternative decision-making process available. For example, Chapter 9 will analyze the criminal justice system as a series of sequential decisions presented to the young criminal in such a way as to lead more people to persist in a life of crime than would do so if all the knowledge of prospects and penalties were made fully available to them at the outset. #59 в контекст | | |
In addition to considering decision-making processes, we need to consider decision-making costs. These costs are not simply the salaries of decisionmaking officials during the time when they are pondering what to do. Clearly the cost of evaluating intelligence reports on Japanese intentions to bomb Pearl Harbor was not simply the pay of the military functionaries who handled these reports. The cost of those processes included one of the largest military catastrophes in American history, and the loss of life and material not only at Pearl Harbor but in a series of major military defeats in the months that followed, in the wake of the crippling and near-annihilation of the American Pacific Fleet on December 7, 1941. The point here is not to condemn, or even to evaluate, the decision-making process as it existed in the military at that time. The point here is to emphasize that the cost of any decision-making process must be assessed in terms of the full consequences entailed by alternative decision-making processes. Such processes cannot be judged by narrowly conceived economic or financial criteria. As we shall see in Chapter 3, even economic decision making cannot be evaluated narrowly in money terms alone. #60 в контекст | | |
The chapters that follow will consider the use of knowledge in economic, legal, and political institutions, the nature of the intellectual process and the role of intellectuals as a social class in influencing trends in modern society. Some disturbing implications of those trends will then be weighed. #61 в контекст | | |
