Chocolate and Gold Coins

Monday, August 22, 2005

An Investment In Bad Ideas

Recently, my family had a nice visit to Norfolk, Virginia. Norfolk is not a very large city, but it is large enough and unfamiliar enough to get lost in. I was driving at night from Virginia Beach, another nearby city, and exited too soon off of the freeway. I then compounded the mistake by turning right instead of left. Pretty soon we were in very unfamiliar territory and my wife was very nervous, (it was a nice residential community, not a slum). She asked me, “Please go back to the freeway,” but I refused. I was certain that I could get us to the hotel. I felt sure that I was getting closer to our hotel and we would soon cross a familiar street and all would be fine. Eventually, my wife panicked and started yelling and my son started crying and I stopped driving. I let my wife drive.

The example of driving down the wrong road can be both a literal example and a metaphor for a particular type of bad thinking: “After investing so much in a particular idea, I am determined to make good on that investment.” A rational person would see the evidence for what it is and cut his losses. But people aren’t always rational. Once you have a lot invested in a project or in an idea, you are likely to become obsessed with proving that your original investment was a good one.

In mathematics, there was a whole school of thought devoted to the study of determinants. They found a million and one wonderful uses for these things. Only one problem: determinants exhibit a terrible curse of dimensionality problem that makes using them in any practical calculation almost useless. Surely someone must have questioned the wisdom of studying these things at some point. But once you have made your reputation as the world’s foremost expert on determinants, it might be hard to admit to yourself that your life’s work has been a waste of time.

In politics, you see many parties cling tenaciously to bad ideas that the average public really doesn’t care for. Why would they do this? In large part, it is the ego of the politicians that drives this phenomenon. These politicians could say, “I used to believe in X, but X didn’t work, but I’m still a good politician, I still have good ideas, and I’m moving on.” No, the politician is wedded to X for life. Even if X is obviously a bad idea, the politician is bound to support it and give X a respectability that X does not deserve.

In India, the Communist Party is still viable and still has considerable influence, despite the fact that socialism obviously did nothing for India. If India had embraced the free market fifty years ago, it would be the world’s wealthiest nation. It citizens would have the kind of prosperity that you see in Singapore and Taiwan and Korea. But instead, India is still a poor nation in which hundreds of millions of people don’t get enough to eat and live in substandard housing. Why would anyone listen to what the Communists have to say? Does anyone really believe in communism anymore? The Communists have invested a lifetime in a particular way of thinking and cannot rewire their thinking. And a person who has voted for the Communists for 40 years is unlikely to say one day, “I’ve been wrong for 40 years, I need to move on.”

In the United States, the Democrats have supported the cause of labor unions for a century. This seemed a wise decision in the 1950’s when most workers belonged to labor unions. But today, only 12 percent of the workforce belongs to a union and this percentage is steadily declining. The unions today tend to represent workers who really don’t need a union: professional athletes, airline pilots, and government employees. In elections, most labor union members vote Democrat but both the share of the electorate that is union and the percentage of union members that vote Democrat are shrinking. These statistics should convince Democrats that they need to move on. But they cannot move on. They have invested in the rhetoric of unionization for a century and the politicians cannot admit that this investment had brought them no returns.

Getting back to the original story about being lost in Norfolk, we did eventually get back to the hotel. In fact, I was going roughly in the right direction and we only needed to go a little farther to see a familiar road. Sometimes in driving around a city, the wrong road can get you near where you want to go. But in life, wrong roads lead nowhere. We always need to ask ourselves, “Are we investing in bad ideas?” If you are a little unsure, you need to give this subject a lot of reflection.

18 Comments:

  • Michael,

    Welcome back!

    Mmm, Virginia Beach, Norfolk...definitely getting homesick.

    Interesting post. The sociologist Leon Festinger propounded a theory called Congnitive Dissonance which explains the behaviour you describe. When a person has made a decision, he tries his best to avoid all information that may conflict with his decision in an effort to reduce stress.

    This, of course, doesn't mean that once a decision has been made or a belief has taken hold, a person is stuck with it forever even though the decision or belief has been shown to be wrong in the first place.

    One of the other ways to reduce the stress is also to see the error of your ways and change your beliefs, have it match reality and thereby reduce stress.

    But, sometimes, it may be too late (when you've bought a car, for example, and then you find out that it was a bad model) - in which case you may just choose to bury your head in the sand.

    By Blogger Sujatha, at 8:04 AM  

  • Hey Michael, welcome back.
    I am not sure if India would be the wealthiest country in the world even if it had adopted free market economy since independence. But yeah, its kind of weird the clout communists still hold in India, given no one else in the world believes in that ideology anymore. But as to your other point about democrats, it is a condition common to both parties, look at republicans, who continue to peddle the myth about Saddam's ties to 9/11 in spite of being proven otherwise, or their continued opposition to stem cell reserch or a million other things they choose to oppose just because they are wedded to those ideas and will not move on with a fresh perspective with the changing times.

    By Blogger gawker, at 8:52 AM  

  • Look at the support the Rural Employment Generation scheme is getting in India and you will see what you mean :)

    By Anonymous Ravikiran, at 8:58 AM  

  • Michael -- I found your third para very puzzling. If there are a million and one wonderful uses for these things, why would someone question the wisdom of studying these things at some point? I also wonder what exactly you have in mind when you say there was a whole school of thought devoted to the study of determinants. If you meant Linear Algebra (Matrix Algebra), then they come up everywhere and have many practical applications. I thought you economics guys understand the importance of this circle of ideas than anybody else!

    By Anonymous Anand, at 9:37 AM  

  • Hi Sujatha, Gawker, Ravikiran, and Anand

    Sujatha: Yes, indeed Cognitive Dissonance is what happens to people who refuse to let go of bad ideas. It has probably happened to me, but I cannot give the subject serious consideration.

    Gawker: Yes, to be fair I should point out the bad ideas of the Republican Party as well, and they have many of them. But they are in power now, and it is easy for people to see anything that the party in power does is really genius in disguise. When they are out of power, they could then consider their mistakes.

    Ravikiran: I'll have to read about that.

    Anand: I shouldn't have given the impression that determinants are completely useless: they can be used in proofs. And it is good to know something about the subject. But the theory was overdeveloped by people who thought that this might be a genuinely effective way of solving computational problems. Once computers were invented, it became apparent that formulas that depended on calculating determinants were of no use. Examples include Cramer's rule and finding the eigenvalue of a matrix using the characteristic polynomial are a couple of examples.

    By Blogger Michael Higgins, at 12:23 PM  

  • Micheal,
    You wrote "In elections, most labor union members vote Republican." I've read that conservative and religious union members vote Republican. Would like to know where you got that information from. Any links?

    By Anonymous Karthik R, at 12:53 PM  

  • Hi Karthik
    I should have done more research on that. I recall reading it somewhere but when I looked up the results I found out it wasn't true. Here is a link from CNN exit poll.

    Kerry got only 60% of the union vote. Since the union vote only represents 14% of the electorate, it didn't help him much.

    By Blogger Michael Higgins, at 1:35 PM  

  • The problem with ideas is that often you get tied down to it emotionally. After that, any logical analysis becomes more and more impossible.

    This is what I feel about both the socialist system in India, as well as so-called free markets.

    Here's an excellent article by Vikrum, interestingly, about a hot discussion that's going on on Dilip's blog.

    By Blogger Sunil, at 6:09 PM  

  • On determinants, I agree when you say that they are over-rated, Michael. Also, this article by Sheldon Axler titled "Down with Determinants!" says that you can do many proofs without introducing this thing called the determinant. In his book Linear Algebra done right, Axler introduces determinants only in the last chapter! And he says that one needs them only in the change-of-variables formula in multi-variable integrals.

    By Anonymous Vishnu, at 7:07 PM  

  • Hi Michael,

    The BCCI is the king of hanging onto bad ideas for too long.

    The problem with political parties is that they are all so incompetent that competition does nothing to drive the bad ones out. That is why communists and the BJP continue do have success in India.

    Vikram

    By Blogger Vikram A., at 7:54 PM  

  • The colour tv was brought to life by a man who refused give up on it and continued to pour money into. Edison used to be told that his ideas were not good enough. Milton Friedman used to preach ideas that nobody in his time believed will ever see being used in policymaking (now are his ideas good is debatable).

    The Communist party in India is now sectarian in many ways with factions and splinter groups getting support from different communities and social groups. There is nothing Communist about it now. Communism is a lost cause anyway. But socialism has done enormous good for India. Socialism is why India has strict labour laws (perhaps a bit too strict). It is the reason why India did not become a huge sweatshop factory like Latin America and it is also the reason why India has much less inequality than Latin America. Every ideology has its place. Socialism has less utility now.

    South Korea and Taiwan are great examples of what protectionism, authoritarianism coupled with massive foreign aid can achieve. I would rather have a democracy from day one.

    Finally, why shouldn't professionals have unions? Are air-pilots not workers who get paid by their employer and can be fired any moment? What about the unions of industrialists?....I am sorry...they are not called unions but go by the name of lobbies, core-groups, chambers, forums etc etc. What has happened is the slow hollowing out of the American manufacturing sector and thus the end of jobs that were unionised a long time ago. If workers....er...sorry employees are treated badly then unions will be formed in the new industries that are getting created now.

    yum yum

    By Anonymous Anonymous, at 11:03 PM  

  • Michael: The argument that "we've come this far, spent this much, so we can't turn back now" is one that is used frequently during, of all things, building dams. Which is likely one reason India is littered with incomplete or inefficient irrigation projects. If you care to, take a look some time at my book "The Narmada Dammed" for some exploration of this.

    I would like to offer you the thought that it isn't just communists who find such thinking seductive.

    And on another note altogether, I wanted to ask: if you went to Norfolk, did you take a drive across that spectacular Chesapeake Bay Bridge? What a fantastic feat that is.

    By Blogger Dilip D'Souza, at 2:02 AM  

  • Hi Sunil, Vishnu, Vikram, Yum Yum and Dilip
    Sunil: Yes, Vikrum and Dilip have a very interesting discussion going. Hopefully, I can weigh in this discussion somewhere.

    Vishnu: That is an interesting link, thank you. I read once that there was a whole branch of mathematics devoted to the study of determinants and developed a whole lot of formulas based on determinants and that branch is now just a dead end.

    Vikram: It is interesting that polical competition doesn't necessarily produce good government.

    Yum Yum: You're back! Well, if socialism has created a world of good for India, it is a well-kept secret. It may have created some wealth for some protected industrialists but the poor of India could have been poor under a vareity of economic policies or they might not have been poor at all.

    Dilip: Thanks for coming by my blog. I should definitely read your book. I want to know more about that.

    I did travel across the Chesapeake Bay Bridge and was not aware that it was world famous like the Golden Gate. It is very impressive. It has two large long tunnels that allow boats to travel above the road.

    By Blogger Michael Higgins, at 6:39 AM  

  • Michael, very interesting post. si true in life that once we start down a path, it is tough to bail out - especially once emotional attachment comes into play... I agree with what Sunil says here - the investment is a lot more than just time or money - and also maybe the fear of being branded a failure?

    By Anonymous Charu, at 11:24 AM  

  • Hi Michael
    The CPI, CPI (M), RPI seem to be doing extremely well in India, else they would be extinct like the Janta Party and other parties of the 70's. What about the biggest daddy of them all China ? They seem to be doing something right to grou at an annual rate of 8%. Is'nt that communism as well ?
    As far as the democrats go yeah they hang on to stupid ideas because of which they are in disarray today. Be it social security restructuring, taking a firm stand on gays or health care, they just cant seem to get it together. I dont see them coming to power in the next 8-12 years.
    Sourin

    By Blogger chappan, at 6:46 PM  

  • Here's why unions are important:
    http://www.spiked-online.com/Articles/0000000CAD12.htm

    By Anonymous Anonymous, at 9:08 PM  

  • How nice. A story with a moral at the end. Preachy as usual.

    By Anonymous Anonymous, at 6:49 AM  

  • Hi Charu and Sourin:

    Charu: Indeed, the fear of admitting failure is probably the biggest factor in persisting with bad ideas. We especially hate to admit we are wrong to ourselves.

    Sourin: China has changed a lot of their thinking in the last thirty years, obviously. I think they probably hold on to some old ideas but they are really determined to be a player in the international economy and they aren't going to let ideology get in the way of that.

    By Blogger Michael Higgins, at 7:20 AM  

Post a Comment

<< Home