Decision Quality Blog

Crowdsourcing, opening the design and marketing of a product to a social network (my definition) has found a new proponent in a hot new shoe company called Ryz. Anyone can play. If you have an idea for a visual design, you download a template, do your cleverest, and post it on the company’s website. If the crowd digs it, you get money in your pocket, accolades and fame, and the product gets produced. It’s trendy, but some people think it’s a model whose time has come.

our first will always be special

Here’s the lead on an article about the company from the Oregonian.

Dozens of young creatives packed into a Pearl District loft Thursday night to judge a shoe-design contest.

The entries — five high-tops — came from artists outside the footwear industry and as far away as New York City. They’d been picked from 60 entries submitted online to a Portland startup, Ryz, which promised to make and market 100 pairs of the winning design.

Ryz founder Rob Langstaff watched excitedly in the background. The former Adidas America Inc. president hopes to replicate this contest each month.

But he plans to do so entirely on Ryz’s Web site, where users can submit designs, vote on the entries and buy the winning shoes. Winners will get $1,000 and a $1 royalty for each pair he sells.

Langstaff’s startup joins a number of young companies nationwide engaged in “crowdsourcing,” a practice that relies on online clusters of consumers to design products and decide which ones to sell. In Ryz’s case, it’s MySpace meets “American Idol,” with footwear as the unit of expression.

It’s a model some believe to be the future of consumer product making, combining social networking, open-source design and word-of-mouth marketing.

Some academics think consumer-driven design will displace corporate research-and-development centers at many companies because it outsources both design and marketing in a way that cultivates and retains customers.

“It’s a more economic model,” said Eric von Hippel, a management professor at the Massachusetts Institute of Technology and author of the 2005 book “Democratizing Innovation.”

“The users are making designs, and other users are getting to choose the ones they like. The first function replaces in-house research and development. The second function replaces marketing research,” von Hippel said.

Tags: crowdsourcing, Ryz, Rob Langstaff,

I’ve known about Stanley Milgram’s breakthrough work on obedience for some time. The classic study involved participants administering progressively greater electrical shocks to a learner at the instruction of a researcher. As the shocks increased in intensity, the learner became increasingly uncomfortable and vocal. At some point, and participants had been told what that point was, the level of shock would be damaging if not lethal. Some people stopped when the screaming started. Many didn’t. The truth was the learner was just acting. But the participants didn’t know that at the time. The experiment was about them, not the person strapped to the electrodes.

Recently two researchers went back and revisited this landmark experiment. As reported in the NYT . . .

The participants usually began with what they thought were 15-volt shocks, and worked upward in 15-volt increments, as the experimenter instructed. At 75 volts, the “learner” in the next room began grunting in apparent pain. At 150 volts he cried out: “Stop, let me out! I don’t want to do this anymore.”

At that point about a third of the participants refused to continue, found Dominic Packer, author of the new paper. “The previous expressions of pain were insufficient,” Dr. Packer said. But at 150 volts, he continued, those who disobeyed decided that the learner’s right to stop trumped the experimenter’s right to continue. Before the end of the experiments, at 450 volts, an additional 10 to 15 percent had dropped out.

This appreciation of another’s right is crucial in interrogation, Dr. Packer suggests. When prisoners’ rights are ambiguous, inhumane treatment can follow. Milgram’s work, in short, makes a statement about the importance of human rights, as well as obedience.

That last bit is the bell ringer and points to the hugely compromising dynamic many of our service members and intelligence people have been put in by our political leaders. More generally, I think it also points to the ease with which we objectify and demonize people we have no real contact with. If you’re not a person to me, I see you very differently than if you are.

In the other paper, due out in the journal American Psychologist, a professor at Santa Clara University replicates part of the Milgram studies — stopping at 150 volts, the critical juncture at which the subject cries out to stop — to see whether people today would still obey. Ethics committees bar researchers from pushing subjects through to an imaginary 450 volts, as Milgram did.

The answer was yes. Once again, more than half the participants agreed to proceed with the experiment past the 150-volt mark. Jerry M. Burger, the author, interviewed the participants afterward and found that those who stopped generally believed themselves to be responsible for the shocks, whereas those who kept going tended to hold the experimenter accountable. That is, the Milgram work also demonstrated individual differences in perceptions of accountability — of who’s on the hook for what.

Another interesting finding. If we perceive we’re accountable for what’s going on, we behave one way. If not, many of us behave differently. Not just differently, but potentially horribly.

And finally not this . . .

The Milgram data have unappreciated complexities of their own. In his new report, Dr. Burger argues that at least two other factors were at work when participants walked into the psychologist’s lab at Yale decades ago. Uncertainty, as it was an unfamiliar situation. And time pressure, as they had to make decisions quickly. Rushed and disoriented, they were likely more compliant than they would otherwise have been, Dr. Burger said. [emphasis added]

In short, the Milgram experiments may have shown physical, biological differences in moral decision making and obedience, as well as psychological ones. Some people can be as quick on the draw as Doc Holliday when they feel something’s not right. Others need a little time to do the right thing, thank you, and would rather not be considered sadistic prison guards just yet.

Those two dimensions of uncertainty and time pressure to produce results, to get something done, are ready reagents that expose our true convictions, or lack thereof, along with predictable human foibles when it comes to making decisions under stress and uncertainty. Thankfully, few of us will be exposed to the kind of stresses mimicked in the Milgram experiments. Unfortunately, many people acting on our behalf at the “sharp end of the spear” are exposed to those pressures all the time, but that’s a subject for another discussion. For the rest of us, take it as caution that stress and uncertainty have the capacity to expose both simple decision traps and parts of ourselves that may not serve as as we wish. The good news is you can do something about it.

Tags: StanleyMilgram, Obedience, Perspectives on Psychological Science, Dominic Packer, Jerry M. Burger, Thomas Blass

One of the chestnuts of neo-liberal thought is the pre-eminence of the idea of free markets and the “creative destruction” that goes along with them (as if any of the ardent believers has ever even read Schumpter or actually looked at economic data to check their assumptions).

Ha-Joon Chang, an economicst of deep credentials and convictions, argues convincingly that free-market proponents are at best players at the revisionist history table, and at worst, cynical defenders of the “rich should be richer” mantra. Here’s a snip from a piece in the Independent.

When they needed to protect their nascent producers, most of today’s rich countries restricted foreign investment. In the 19th century, the US strictly regulated foreign investment in banking, shipping, mining, and logging. Japan and Korea severely restricted foreign investment in manufacturing. Between the 1930s and the 1980s, Finland officially classified all firms with more than 20 per cent foreign ownership as “dangerous enterprises”.

While (exceptionally) practising free trade, the Netherlands and Switzerland refused to protect patents until the early 20th century. In the 19th century, most countries, including Britain, France, and the US, explicitly allowed patenting of imported inventions. The US refused to protect foreigners’ copyrights until 1891. Germany mass-produced counterfeit “made in England” goods in the 19th century.

Despite this history, since the 1980s the “Bad Samaritan” rich countries have imposed upon developing countries policies that are almost the exact opposite of what they used in the past. But these countries condemning tariffs, subsidies, public enterprises, regulation of foreign investment, and permissive intellectual property rights is like them “kicking away the ladder” with which they climbed to the top - often against the advice of the then richer countries.

But, the reader may wonder, didn’t the developing countries already try protectionism and miserably fail? That is a common myth, but the truth of the matter is that these countries have grown significantly more slowly in the “brave new world” of neo-liberal policies, compared with the “bad old days” of protectionism and regulation in the 1960s and the 1970s (see table). And that’s despite the dramatic growth acceleration in the two giants, China and India, which have partially liberalised their economies but refuse to fully embrace neo-liberalism.

Growth has failed particularly badly in Latin America and sub-Saharan Africa, where neo-liberal reforms have been implemented most thoroughly. In the “bad old days”, per capita income in Latin America grew at an impressive 3.1 per cent per year. In the “brave new world”, it has been growing at a paltry 0.5 per cent. In sub-Saharan Africa, per capita income grew at 1.6 per cent a year during 1960-80, but since then the region has seen a fall in living standards (by 0.3 per cent a year).

That’s the funny thing about orthodoxy. It takes on the well worn patina of absolute truth even when the observable facts tell a different story. One possible lesson when listening to such pronouncement, pro or against “orthodox” positions, is to ask yourself, “What’s in it for the person doing all the preaching?”

Both the history of rich countries and the recent records of developing countries point to the same conclusion. Economic development requires tariffs, regulation of foreign investment, permissive intellectual property laws, and other policies that help their producers accumulate productive capabilities. Given this, the international economic playing field should be tilted in favour of the poorer countries by giving them greater freedom to use these policies.

Tags: Ha-JoonChang, Heterodox Economics, Interventionist Economic Policies, Kicking Away the Ladder, Bad Samaritans

Green-washing is the new word for the hot new trend in marketing . . . painting what you sell and do “green.” I found this list by TerraChoice while reading an article in the Seattle Times. I think it relates nicely to the topic we like to yammer about, “decision making.”

Sin of the Hidden Trade-off

e.g. paper (including household tissue, paper towel and copy paper): “Okay, this product comes from a sustainably harvested forest, but what are the impacts of its milling and transportation? Is the manufacturer also trying to reduce those impacts?” Emphasizing one environmental issue isn’t a problem (indeed, it often makes for better communications). The problem arises when hiding a trade-off between environmental issues.

Sin of No Proof

e.g. Personal care products (such as shampoos and conditioners) that claim not to have been tested on animals, but offer no evidence or certification of this claim. Company websites, third-party certifiers, and toll-free phone numbers are easy and effective means of delivering proof.

Sin of Vagueness

e.g. Garden insecticides promoted as “chemical-free.” In fact, nothing is free of chemicals. Water is a chemical. All plants, animals, and humans are made of chemicals as are all of our products. If the marketing claim doesn’t explain itself (“here’s what we mean by ‘eco’ …”), the claim is vague and meaningless. Similarly, watch for other popular vague green terms: “non-toxic”, “all-natural”, “environmentally-friendly”, and “earth-friendly.”

Sin of Irrelevance

e.g. CFC-free oven cleaners, CFC free shaving gels, CFC-free window cleaners, CFC-disinfectants. Could all of the other products in this category make the same claim? The most common example is easy to detect: Don’t be impressed by CFC-free! Ask if the claim is important and relevant to the product. (If a light bulb claimed water efficiency benefits you should be suspicious.) Comparison-shop (and ask the competitive vendors)

Sin of Fibbing

e.g. Shampoos that claims to be “certified organic”, but for which our research could find no such certification.
When I check up on it, is the claim true? The most frequent examples in this study were false uses of third-party certifications. Thankfully, these are easy to confirm. Legitimate third-party certifiers – EcoLogo^CM, Chlorine Free Products Association (CFPA), Forest Stewardship Council (FSC), Green Guard, Green Seal (for example) – all maintain publicly available lists of certified products. Some even maintain fraud advisories for products that are falsely claiming certification.

Sin of the Lesser of Two Evils

e.g. Organic tobacco. “Green” insecticides and herbicides.
Is the claim trying to make consumers feel ‘green’ about a product category that is of questionable environmental benefit? Consumers concerned about the pollution associated with cigarettes would be better served by quitting smoking than by buying organic cigarettes. Similarly, consumers concerned about the human health and environmental risks of excessive use of lawn chemicals might create a bigger environmental benefit by reducing their use than by looking for greener alternatives.

Tags: Green-washing, Green, Eco, TerraChoice, Six sins of greenwashing, decision making

All the jawboning about the “real cause” of the high price of oil points out one of the common pitfalls of decision making: the use of information. On the front end of a decision, information is useful to help define the issue and frame the problem. Later, information is needed to determine the costs and difference between the alternatives and to assess the uncertainties (information you don’t have).

On the front end, there is no such thing as objective data. There is data and there is the lens you view it through. For example, according to a recent piece in the Seattle Times, one side says the problem with oil prices is financial speculators.

And the reason?

Since September 2003, traders holding crude-oil futures contracts jumped from 714 contracts traded to more than 3 million contracts traded in May 2008, said Rep. Bart Stupak, D-Mich., who chairs the House Energy and Commerce Subcommittee on Oversight and Investigation. His panel held its second hearing on energy speculation Monday.

Speculators now account for 71 percent of the oil-futures market, up from 29 percent in 2000, he said, citing data from the CFTC. Overall, commodity index speculation has jumped from $13 billion in 2003 to some $260 billion today.

So what’s going on then . . .

In fact, recent industry statistics show demand both within the United States and globally for petroleum has actually been falling and inventories have been rising as consumers, faced with escalating prices at the pump, use less fuel, said David Edwards, president and portfolio manager at Heron Capital Management.

But it doesn’t seem to have any effect on the direction of prices. “The price pattern looks much like the Internet stocks index in late 1999, early 2000,” he said.

On the supply side, Evans noted the Organization of Petroleum Exporting Countries pumped an average of 32.24 million barrels per day of crude oil in May, an increase of 370,000 from April.

So if you follow the logic, the volume of contracts and the dollars associated with those contracts have piled into the market at the same time that supply has risen and demand has fallen. The money wouldn’t be flowing in if investors didn’t see a financial win. So add all that up–rising supply, falling demand, riding prices– and this side of the argument says, in effect, “What other conclusion is there?”

The other side sees it differently . . .

Treasury Secretary Henry Paulson and many financial-industry analysts say prices are still set by the fundamentals of supply and demand.

“There’s no evidence of speculative influence. Speculators are not contributing to the demand for physical oil as they almost always roll positions prior to delivery,” says Craig Pirrong, a professor of finance at the University of Houston and a member of the CFTC energy markets advisory committee.

“Speculators are not the cause of high oil prices,” said Representative Joe Barton of Texas, the senior Republican on the committee. Prices are driven by the lack of supply, he said.

Energy Secretary Samuel Bodman said June 21, while attending a meeting of oil producers and consumers in Saudi Arabia, there is “no evidence that speculators are driving prices.”

The article I’ve referenced doesn’t offer data to support the contra point of view, so we’re left with data to support the “speculators are the problem” thesis, and orthodoxy and assertion by people with obvious ties to Big Oil holding down the other chair. The third argument, that the issue is “uncertainty about credit and geopolitics” is a good talking point but doesn’t hold up based on the apparent facts about the current state of supply and demand. But to return to my point, coming to an agreement on the definition of a problem requires a common understanding about what’s actually going on. The people in the big seats don’t seem to agree.

Tags: oil, gas prices, Masters Capital Management, Heron Capital Management, OPEC, Henry Paulson, Samuel Bodman, decision making

I’m a fan of the Cuban Missile Crisis as a study in decision making and leadership. A new book by Michael Dobbs adds some new insight according to a review in the New York Times.

And in a shot at the current administration . . .

It is hard to read this book without thinking about what would have happened if the current administration had faced such a situation — real weapons of mass destruction only 90 miles from Florida; the Pentagon urging “surgical” air attacks followed by an invasion; threatening letters from the leader of a real superpower and senators calling the president “weak” just weeks before a midterm Congressional election.

Life does not offer us a chance to play out alternative history, but it is not unreasonable to assume that the team that invaded Iraq would have attacked Cuba. And if Dobbs is right, Cuba and the Soviet Union would have fought back, perhaps launching some of the missiles already in place. One can only conclude that our nation was extremely fortunate to have had John F. Kennedy as president in October 1962. Like all presidents, he made his share of mistakes, but when the stakes were the highest imaginable, he rose to the occasion like no other president in the last 60 years — defining his goal clearly and then, against the demands of hawks within his administration, searching skillfully for a peaceful way to achieve it.

My own sense is that the current administration will go down in history for many things, but decision-craft and thoughtful leadership won’t be among the lauded attributes

Tags: cubanmissle crisis, JFK, Bobby Kennedy, Richard Holbrooke, decision making

Just in case this thought didn’t occur to you, that new fangled phone you’re carrying around holds the key to the next round of stripping away what little privacy you have left in the name of better understanding your actions and preferences, presumably for the benefit of tailoring even better offers for your consideration and consumption. [read]

We’re in the midst of a boom in devices that show where people are at any point in time. Global positioning systems are among the hottest consumer electronics devices ever, says Clint Wheelock, chief research officer at ABI Research, a technology market follower. And cellphones increasingly come with G.P.S. chips. All of these devices churn out data that says something about how people live.

Such data could redefine what we know about consumer behavior, giving businesses early insight into economic trends, better ways to determine sites for offices and retail stores, and more effective ways to advertise.

Just this month, the journal Nature published a paper that looked at cellphone data from 100,000 people in an unnamed European country over six months and found that most follow very predictable routines. Knowing those routines means that you can set probabilities for them, and track how they change.

“What we do is really not random, even though it may appear random,” says Albert-László Barabási, a physicist at Northeastern University who is one of the paper’s authors.

Tags: privacy, GPS, ABI Research, Decision Making

When values change, when problem definitions change, options that were not longer part of the consideration set now become viable. What seemed like a bad trade-off yesterday, becomes a really good idea today.

The new story line is that the combination of high fuel costs, high food costs, general economic gloom, the housing upset . . . all that combines to create a permanent, long-term, secular change in consumer decision making.

As consumers muddle through all that is plaguing the economy, they have battened down the hatches and sharply shifted their spending habits, turning to money-saving options that run the gamut from transportation to health as they find ways to pay for dramatic increases in gasoline and food.

What emerges is a new paradigm of consumerism that some experts believe will live long after the economy recovers.

“Suddenly consumers are focused on buying what they have to have as opposed to buying what they want to have,” said Howard Davidowitz, chairman of Davidowitz & Associates, a New York retail consulting and investment-banking firm.

“This is a permanent change for Americans, who will face a declining standard of living over the next 20 years,” he added.

You can read the rest of the story for examples about how people are drinking coffee at home vs. buying at Starbucks, or riding the bus, or whatever. As an example of decision making behavior, it’s a fine little story. But the idea that six months of pain is enough to fundamentally change human behavior?

Tags: Inflation, food prices, starbucks, gas prices, decision making

An interesting piece in the WSJ suggests that American consumers have reached a tipping point, and are now actively seeking to lower their energy consumption and costs.

Mr. Hamilton said the tipping point on gasoline came when prices started pinching consumers and businesses enough to force change. He calculates that U.S. expenditures on oil in the first quarter, when crude averaged $98 a barrel, came to about 5.2% of gross domestic product, up from 3.5% in 2005. With crude now fetching more than $130 a barrel, oil’s share of GDP is getting closer to the peak of 8.3% hit in 1980.

The persistence of high energy prices plays a role. It takes time for consumers to make changes that lower energy use. That isn’t so much because people first shrug off high energy costs. They can and do react quickly. But the most important factors in energy-consumption changes come only with time — buying a new refrigerator or a smaller house or trading in a sport-utility vehicle for a smaller car.

“What we’re seeing now is prices have been high for a while and consumers have become convinced high prices are here to stay. That’s given them time to make changes, such as the car they buy,” said economist Christopher Knittel of the University of California, Davis. “That has larger effects than, ‘Well, I’m just not going to drive to the mall this week.’”

Tags: energycosts, oil costs, gas costs, tipping point, decision making

I’ve mentioned before a recent speech I gave on story telling. It’s now on this site as well [clicky].

Tags: tellme your story, story telling, stories, decision making