MIT is discussing Should Google Leave China

http://events.mit.edu/event.html?id=11610639

My good friend Edward Steinfeld, Associate Professor of Political Science at MIT (http://web.mit.edu/polisci/faculty/E.Steinfeld.html) is moderating the discussion at MIT today.

The panelists of the discussion are (1) David Clark, Senior Research Scientist, Computer Science and Artificial Intelligence Laboratory, (2)  Yasheng Huang, China Program Professor in International Management, Sloan School,  (3) Craig Simons, Knight Science Journalism Fellow and (4) Xiaojian Zhao, Knight Science Journalist Fellow.

I am curious about the delicate dilemmas that the moderator will try to address.

Congress, Goldman Sachs and the Hindsight Bias

Being a student of System safety I could not ignore the public hearing that is taking place in the US Senate on Goldman’s handling of high-risk mortgage business in 2007.

The bigger is the failure or the devastation caused by an accident the more difficult it is to reconstruct the preceding events, processes and systematic factors.  In the case of Goldman, its handling of highly securitized mortgage deal called Abacus, is overshadowed by even larger devastation of the financial crisis that went far beyond the Wall Street.  The public outrage with the economic crisis that has been boiling for the last two years has suddenly found actual addressee, Goldman Sachs Group, thanks to the SEC’s investigation and the independent inquire by the Senate’s Permanent Subcommittee on Investigations.

Goldman’s interaction during the hearing fuels the outrage even further as it treats testimonies of its executives as part of the group’s upcoming legal battle with the SEC.  By fighting against possible legal litigations and denying any wrongdoing, Goldman gets deeper into the trap of becoming the villain, who in public’s eyes is blamed for the financial crisis.  On top of that, the tug of war between two parties in the Congress makes the Goldman’s hearing major strategic battle that will allow the ruling party push its bill on financial regulations.

The goal of this essay is not to defend Goldman, but to explain the phenomena of hindsight bias. As people try to make sense in such confusing environment, it is easier to focus one’s attention on specific individuals and become bias towards the end result.  Sidney Dekker, the Swedish system safety expert, describes the hindsight bias in form of four different, but interrelated reactions: (1) Retrospective, (2) Counterfactual, (3) Judgmental and (4) Proximal (The Field Guide to Understanding Human Error, 2006).

People tend to react post factum and backwardly reconstruct sequence of events in a linear manner.  In the aftermath of an accident, one can easily list logical arguments how and why people should have foreseen and prevented the upcoming events. We easily judge people, who failed to take proper actions. We focus on their personal shortcomings such as absence of proper training and experience, health conditions and hours of proper sleep, etc.  We usually tend to focus our attention on people who happened to be closest to the accident in term of time and space.  In the case of Goldman Sachs, Fabrice Tourre was designated as the sacrificial lamb, who will be slaughtered to satisfy the crowd.

Hindsight gives the investigators better and more complete information in comparison to people who made the decision prior to the failure.  It provides with facts that become midpoints in the linear logic flow that the investigator reconstructs. As we walk backwards, each facts is perceive not as an “intersection point” with a list of equally valid choices, but rather as point of the process when/where incorrect decision was recorded. Hindsight bias exaggerates the importance of the recorded facts versus other events that are not directly related to the specific accident.

Specific sequence of events shapes its post-factum interpretation. It connects events in specific post factual manner. What Sidney Dekker calls tunnel vs. zigzag.  The tunnel vision that the bias creates, oversimplify the history of the accident, with linear logical flow and binary (right and wrong) choices.  As part of the oversimplification process, causality of events are oversimplified as well. As the result, the hindsight prevents us from differentiating between what is know after the accident and what was known by people prior and during the accidents.

What are the objectives of the Congress and the SEC? Get more popularity with the public; re-direct public dissatisfaction toward the Wall Street; take down Goldman Sachs; push for new regulations; etc? As in any other accident investigation, the public, the Congress and the SEC will focus on assigning blame on particular individual instead of focusing on learning the root causes, especially if the objectives of the blame are so vague.

Current Trends in Operational Environment

Organization is a form of human interaction within specific temporal and spatial domain. As part of their day-to-day activity humans have to interact within and with variety of organizations, which differ in terms of goals, complexity, decision-making process, hierarchy and performance.

We would like to focus on two general trends, which may not present holistic foresight, but rather state central to our discussion questions. First trend is the changing nature of interrelation between human and communication. Second trend is dynamic interaction process between organization and operational environment.

Individualization of communication and its affect on human behavior

New means of communication increase personal connectivity to the existing technological and social networks. As the amount of exchanging data increases, humans demand faster, more reliable and more capable channels of communication. Such channels allow humans absorb information in print, audio and visual format at much faster pace than ever before.

Individualization of communication affect human learning pattern, which shifted form printed books and formal learning to wide range of new learning methods and informal education processes. Move over, the monopoly of formal institutions to generate knowledge and to confirm facts changes human behavior dramatically. Such behavior is vivid in current ability to respond instantaneously to news, events, communication messages, personal or collective moods, political opinions, etc. Each human today can be considered not only consumer, but also a possible generator of information and knowledge.

Interrelation between organization and operational environment

Standardization of operational procedures such as international financial and accounting standards, currency exchange, financial planning and economic forecasting led to common themes of operational environment in different countries. Different benchmarking in terms of competitiveness, business-friendliness, corruption, penetration of information and communication technologies create certain expectations from national states to progress towards commonly acceptable standards.

Organizations do play significant role in persuading nation states to remove certain barriers and create favorable operational environment.  On the other hand, key characteristics of favorable operational environment over time become embedded in organization’s structure and behavior. For example, state’s requirement for certain transparency may not benefit particular organization in the short term, but over time becomes unquestionable part of organizational behavior. In sum, organizations push for more acceptable standards of operational environment, as well as adapt to the changing operational environment.

Decision making process

Keeping these two trends in mind, we need to step back to get clear picture of the evolution of decision-making processes. Let us evaluate such decisions in terms of frequency, proximity, magnitude and immediacy.

In terms of frequency, today’s decision makers are equipped with complex analytical tools that can measure uncertainty and allow exercising options as frequently as it may require. New means of communication allow individuals within organizations to calibrate their decisions in a continuous mode.  More over, new facts and consequences of a certain decision take much less time to communicate and could be shared with wider audience. Outside party of specific organization such as stakeholders, consumers, client, watchdogs, etc. may have as much influence on the frequency of such decisions as any internal party with the organization. In sum, constant flow of information and analysis makes the decision making a truly continuous process with numerous calibrating interferences.

New means of communication and human behavioral patterns change human perception of proximity.  Our perception of distance and time changes with the ability to communicate with different parts of the globe at lower cost and faster pace. Virtual collaborative projects are erasing physical borders.  Decreasing cost of physical shipment and steady decline in the cost of travel narrows the gap between physical and virtual domains of human collaboration.  Popular culture, common perception of standards of living, shared goal and ability to communicate frequently helps to narrow most important cognitive gap – trust between individuals.

Favorable operational conditions and new means of communication do affect the magnitude and immediacy of decisions.  One may assume that the power of top management would increase with increased magnitude and immediacy of decisions.  However, in such environment the top management does not posses the monopoly of knowledge and facts. The same constant flow of information that was described above could paralyze the top management with multiple decision options, which presumably are subject to immediate and frequent revision.

In addition, middle management may have as much power to generate equally significant or insignificant decisions in terms of magnitude and immediacy. Availability of information, facts and knowledge give middle management a perception of complete picture in which this particular organization has to operate.  In other words, information is not longer collected and decisions are no longer disseminated from the top of organization’s paradigm. How can top management expect to keep its house in order if its directives become irrelevant before they reach their addressees?

SHADOWS OF THE INTENET AGE

The initial purpose of this essay was to write about anonymity and human conflict in the internet age. In my opinion it is important at least to raise the question why people who behave in civilized manners during the daylight become aggressive, impulsive, antisocial individuals in the digital realm? How anonymity influences such behavior? This led to deeper analysis, which I am afraid will not be covered in such short essay. My confidence emerges for the clarity of thought, rather than deep knowledge of the subject.

Internet age finally circuited what the Russian philosopher Vladimir Vernadsky called Noosphere (1944), or the sphere of human thought. According to Vernadsky, the Noosphere is the highest form of human society, where the human mind becomes its most powerful source of energy. High speed and low cost of communication, digital sound, quality of static and dynamics images become key elements that make such sphere a reality.

Where Vernadsky seem to be wrong is in his view of Noosphere being the highest manifestation of human as the social creature. By social creature I assume a responsible member of the society, who complies with socially acceptable rules and who benefits from cooperation among members of that society. Vernadsky looks at human being as an atom of new society that outwardly interacts with the social, technological and natural environments (what I will call N+1, N+2, etc).

As Vernadsky was developing his outward-focused theory, Carl Jung was developing his inward-focused theory called analytical physiology, which in my opinion presents alternative view of the internet age (what I will call N-1, N-2, etc). Intenet today is as much about information as about “dreams” and “images”. My main hypothesis is that, as human becomes part of the sphere of human thought he or she does not act solely as atomic social creature.

However, first we need to understand where the domain of the sphere of human though is. I argue that such sphere is built neither from hardware infrastructure (cables, satellites, servers), nor from software (web, algorithms, protocols). Both hardware and software are just instruments that are constantly replaced and updated as the amount of the total human knowledge demands new capacities. The capacity of such sphere can be limited only by the collective human ability to generate new thoughts, idea and knowledge.  Additional differentiation has to be made between thoughts (which could be simply perceptions of the world that surrounds us), ideas (new reaction that results from interactions with the world) and knowledge (some subjective verification or closing a gap between previous perceptions and new interaction experience).

If the sphere of human thought is the product of human mind (both rational and irrational, intelligent and unintelligent), then the domain of this sphere is both collective human consciousness and unconsciousness.

As person becomes part of the sphere of human thought, he or she takes multiple context-dependent roles and behaviors, or what Jung identifies as archetypes – Self, Ego, Persona and Shadow.  Self, or the God Within, is the constant driver of truth and self-purpose.  According to Jung, the Self develops in the second half of individual’s life as it encounters and struggles with Ego for mutually beneficial balance.  Self struggles to generate new knowledge that could be beneficial to the collective consciousness, its timeless footprint in the history of the humanity. The Ego, is individual’s temptation to be important, famous, recognizable in the sphere of human thought.  Ego searches for its citation index, google search results, number of “friends”, statistics of the “twitter posts” and “blog hits”.  To achieve that Ego generates ideas. Ego demands recognition and respect, it also develops an identity of the given individual with which such recognition has to be matched (nick, user name, email and web address). This leads us to Persona, or the public profile of the individual – his/her Facebook, Linkedin, Myspace, Ebay, etc.  Persona is social Façade, for social acceptance within different communities (university alum, professional association, interest/fan/solidarity groups, etc).  As any object, humans have both façades and shadows. Shadow is the instinctive, irrational, repressed part of the unconscious mind.  It is the dark side of each individual, which does not recognize socially acceptable and enforced norms of behavior.

All archetypes generate thoughts, but the Shadow brings its thoughts from the deepest and darkest “corners”, which could be both most creative and most destructive. Internet releases the Shadow from the dark corners of individual unconsciousness into collective unconsciousness of the sphere of human thought.  Thus billions of conflicts that take place over the net are surged by this dark and simultaneously creative energy matter. What makes many virtual conflicts so irrational is the fact that they involve conflicts within specific individuals, conflicts among different individuals, and conflicts between different archetypes of different individuals.  Intuitively many of us recognize such complexity and whenever we decide to reply to offensive comment, we often try to analyze who that person is and what made him/her write such thoughts.

Anonymity erases the social norms and fuels rage.  This topic deserves separate discussion.  As Shadow gets its own unique nick and/or username, it starts a separate and often destructive life in the virtual domain. As individual unconsciousness becomes part of the collective unconsciousness, it also becomes more vulnerable to collective manipulation based on prejudice, fear, dogmatic beliefs, anger, etc.  The key difference of the internet and its social media communities is that it provides more customized/individualized approach to such manipulation. Unlike radio, TV, newspapers and other old media instruments, internet and its social media communities allow to target each individual and his/her unconsciousness based on his/her digital footprints.

Whether it is Persona, Ego or Shadow, their creative and often unfulfilled energy can be directed towards destroying the individual (suicide clubs) or actual communities in which the individual live (extremist groups). In the same manner, destructive energy could be projected from an external source, in which community or its particular leading members may destroy the individual (cyber bulling).

In short, the sphere of human thought takes the millennium old internal conflict into a new level. It connects to the broadband the “caveman” that lives in each individual. Moreover, it gives an opportunity for each “caveman” to connect to the rest of the “savages” of the virtual world.

I think of myself as an informed optimist. So I believe that human society is be able to cope with such complexity as long as we purposely understand new vulnerabilities and the fact that collective unconsciousness is as much part of the sphere of human thought as the collective consciousness.

Principle 40

While a system traditionally is modeled by decomposition into structural elements, the dynamic behavior of systems and actors is modeled by decomposition of the behavioral flow into events (Jens Rasmunssen).

How Safe Is Safe Enough?

Safety is a public good because the “consumption” or enjoyment of safety by one individual does not diminish the “availability” of safety for other individuals (assuming that the value of each human life is equal to the value of any other human life).  Government is elected by citizens of the society and is given official authority to enforce rules and regulations. Thus the government is given official power through enforcement of laws and regulations to maintain safety for the benefit of all citizens within its jurisdiction.  Magnitude of an accident (and its consequences) may affect each and every individual in the society or a random group of individuals. Theoretically, it is in general interest of all citizens to oblige with the rules and maintain safety.  In reality, “the picture” has many conflicting nuances.

As individuals we react to immediate pain.  Pain simplifies our point of view and helps us to survive (Minsky, 1985). Pain is build-in alarm system that informs human brain about immediate threats to its body’s existence.  As humans we tend to react to most immediate threats. When threats (and/or health hazards) are remote in terms of time and impact – such as smoking, breathing poisonous air, eating trans-fat food, etc – our reaction is not as swift or as rational.

A societal equivalent of human pain is loss of human life.  As a community or a society, people tend to react to accidents that involve loss of human lives with great attention.  The risks that are not visible or well understood do not get public attention until fatal accident actually takes place. As individuals, human society in general does not have high attention to threats and problems that are far in time and space.

Nothing can be valued more than human life. However, there is a distinction between the value of an exiting human life and the value of a deceased human being.  The later case was a substitute for blood feud or what is called vendetta, where attaching price to diseased life was the way to avoid further bloodshed. In fact this approach has been considered as more civilized conflict resolution for centuries (what is know as blood money). The moral line is drawn between the world of alive and the world of deceased. Those who attempt to take “the price tag” from the world of deceased and use it in our world make rational analysis, which is immoral at the same time.

In my point of view, there are two important trends worth noticing:

(1) As human society become more dependent on complex systems, there seems to be slow convergence of system safety and public health. It is clear that the fundamental of two fields is the same – the value of human life. However, it is not clear whether such oversimplified approach can be beneficial to either system safety or public health. This is just an intuitive feeling which I hope to understand during the course.

(2) Availability of information and its widespread and fast dissemination leads to greater public awareness. Easily available instruments and tools (email, matlab, google earth, skype, youtube, simple chemical tests and pH strips, individual radioactivity sensors, etc) lead to increased role of individuals in dealing with safety, which in turn influence behavior of governments and corporations. Availability of information also builds much richer postmortem picture of an accident and different accident scenarios, where ordinary citizens are able to question and challenge official reports and causes of an accident.

The simplest answer to the question “who should be responsibility for risk management?” is government and its regulatory agencies.  However, we know that the government agencies are managed and run by individuals. These individuals, as many of us, can manage only a certain level of complexity. There is no guarantee that they can integrate all the pieces together and maintain public safety all the time.

I think (“which implies that I do not as yet know so”), since safety is a public good, it has to be collective responsibility of each and every citizen in the society to think in cohesive and responsible when it comes to safety.

The role of the legal system depends on the end–result that society expects from its courts.  There must be a reason why the US legal system adopted the civil (tort) approach towards safety hazards (besides obvious corporate interests). It is my understanding that such approach was in part chosen to shift attention from responsibility of individuals to corporate responsibility, and eventually to accidents/hazards causes. It is difficult to judge if the system is functioning effectively or not since we have no information how many accidents/hazards were prevented just by potential possibility and danger of civil litigation.  We can only see the cases that are floating on the surface, in which corporations are using complex legal procedures to avoid, mitigate or postpone expensive settlements.

Criminal charges, on the other hand shift the focus from the accident to particular individual responsibility. It is often the case where both the government (which could be under public pressure) and the public itself are eager to “teach a lesson”. The expectation is shifted from understanding wholesale list of accident’s causes to finding specific “target” or “villain”.  Other potential “targets” are giving limited information about the accident reinforcing the initial bias, redirecting the blame and sacrificing the least protected “target.”

In the case of tainted milk, the Chinese government decided to teach a lesson. Three individuals were sentenced to death and 21 others, “mostly dairy producers and middlemen, were given terms ranging from two years to life in prison” (http://www.nytimes.com/2009/01/22/world/asia/22iht-milk.3.19601372.html).  Such lesson is likely to influence behavior of Chinese businessmen and even prevent potential food poisoning. One can argue that the trial may bring limited benefits to the society, even if it does not address the structural problem of food safety.

Here I would like to address the issue of Human error and Learning from Mistakes described (Flatch et al.). I think that we need to decouple <understanding the accident> from <learning from the accident>. I argue that it could be possible to learn from an accident even if complete description of an accident is not determined and vice versa. In any of the four options, the end result of the accident is the same.

	Learning form an accident	Failing to learn from an accident
Understanding the accident	X	X
Failing to understand the accident	X	X

So in the case of tainted milk, even if full picture of the food safety hazard has not been found or at least publicly recognized (i.e. export of the poisoned food products), there is still a possibility that appropriate lessons are learned. In the case of uncontrolled acceleration (Audi, Toyota, GM), even if the cause(s) of the fault(s) was known, the management has not learned the lesson.

This takes us back to individual reaction to physical pain.  Perhaps criminal prosecution of individual executives (in this case imprisonment) could be more effective approach in achieving public safety at the cost of objective accident investigation.

The biggest doubt here is that by focusing on individual responsibility we do not solve the challenges of potential accidents, which could be greater in power and magnitude as our society becomes more complex and interdependent.

On the relation between technology and decentralization

Recent technological developments and low cost of communication do play limited role in increased de-centralization of organizations and processes. However, I think there is an important factor that has been influencing organizational design long before rapid advancements in technology.

The environment in which human organizations have to operate dictate the design of the organization. If we assume that the organization managed by humans takes rational action, then we can expect the organization to adapt to the environment within which it had to survive, exist, operate, create value and benefits. One may argue that a clear distinction had to be made between natural and business environments, where the latter can be easier to influence and change. I do not discount a possibility of dynamic interaction between the organization and its outside environment.  Nevertheless, if we assume that there are many different companies operating within specific business environment, it is more likely for the business environment to change the shape of the organization than the opposite.

In theory, the very same organization can operate as centralized organization in one environment and de-centralized under different “environmental” conditions. In reality,  organizational culture, business model, structure, procedures and practices do not allow such dynamic to take place rapidly.  However, my key point is that technological development and low cost of communication do not solve this problem either.  Cheap and low cost communication can actually enforce centralization process and prevent much needed evolution (i.e. General Motors operations in Europe). In the same way, availability of new communication tools may not necessarily push meshed organizations to higher level of coordination, which could be beneficial, sustainable and competitive decision in the long term (i.e. Air-traffic control system in the US, independent sustainable energy generators in China or crab fishing in the Pacific).

Decentralization may also not necessarily bring freedom to a particular individual. Human societies are much more complex than we actually perceive. Such complexity is embedded by blood, physiological, religious, regional, ethnic, cultural, hierarchical, professional, and many other relations and interconnections, which often create multilayer structure of the particular society (what some call “the fabric”). Greater in size, cheaper, faster and interactive communication may change some of the interconnections, but not necessarily all of them. As in organization, such interconnection can actually strengthen old forms of interconnection (religious broadcasting, ethnic global-reach media, etc).

Moreover, better communication does make an individual more aware (or misinformed), but not necessarily lead to more independent decision or action. As the result, it does not directly make the individual more or less free.

Of course we need to define common understanding the meaning of freedom. Let us simply limit the understanding of freedom as “as freedom of choice and decision in an open market.”  But even in this limited context, there are number of barriers that new means of communications are not yet able to solve (difference in trade regimes, currency exchanges, environmental and labor regulations, etc).  As for an ideal global citizen, his/her consumer choices are even more standardized within a list of corporate products (Procter and Gamble, Gillette, Nestle, Coca Cola, McDonalds, etc), whereas individual entrepreneurship opportunities are narrowed down to marginal and meaningless service providing.

In sum, technology and innovation brings illusion of freedom and decentralization on both on global and national scales. Such illusion definitely helps to manipulate and control most informed and active groups of consumers by restraining them in a virtual sand box.  As in American Idolä, the public is just given an illusion of contributing to the decision-making, which in reality has already been made by the producers and “the corporate”.  At the end of the day the food has to be harvested and served, the electricity and nuclear plans have to be run, the planes and air traffic have to operate safely, cargo ships from China have to be navigated to ports and uploaded to Wal-mart trucks.