Everything is Obvious.

Duncan Watts’ book Everything is Obvious *Once You Know the Answer: How Common Sense Fails Us fits in well in the recent string of books explaining or demonstrating how the way we think often leads us astray. As with Thinking Fast and Slow, by Nobel Prize winner Daniel Kahneman, Watts’ book highlights some specific cognitive biases, notably our overreliance on what we consider “common sense,” lead us to false conclusions, especially in the spheres of the social sciences, with clear ramifications in the business and political worlds as well as some strong messages for journalists who always seek to graft narratives on to facts as if the latter were inevitable outcomes.

The argument from common sense is one of the most frequently seen logical fallacies out there – X must be true because common sense says it’s true. But common sense itself is, of course, inherently limited; our common sense is the result of our individual and collective experiences, not something innate given to us by God or contained in our genes. Given the human cognitive tendency to assign explanations to every event, even those that are the result of random chance, this is a recipe for bad results, whether it’s the fawning over a CEO who had little or nothing to do with his company’s strong results or top-down policy prescriptions that lead to billions in wasted foreign aid.

Watts runs through various cognitive biases and illusions that you may have encountered in other works, although a few of them were new to me, like the Matthew Effect, by which the rich get richer and the poor get poorer. According to the theory behind it, the Matthew Effect argues that success breeds success, because it means those people get greater opportunities going forward. A band that has a hit album will get greater airplay for its next record, even if that isn’t as good as the first one, or markedly inferior to an album released on the same day by an unknown artist. A good student born into privilege will have a better chance to attend a fancy-pants college, like, say, Harfurd, and thus benefits further from having the prestigious brand name on his resume. A writer who has nearly half a million Twitter followers might find it easier to land a deal for a major publisher to produce his book, Smart Baseball, available in stores now, and that major publisher then has the contacts and resources to ensure the book is reviewed in critical publications. It could be that the book sells well because it’s a good book, but I doubt it.

Watts similarly dispenses with the ‘great man theory of history’ – and with history in general, if we’re being honest. He points out that historical accounts will always include judgments or information that was not available to actors at the time of these events, citing the example of a soldier wandering around the battlefield in War and Peace, noticing that the realities of war look nothing like the genteel paintings of battle scenes hanging in Russian drawing rooms. He asks if the Mona Lisa, which wasn’t regarded as the world’s greatest painting or even its most famous until it was stolen from the Louvre by an Italian nationalist before World War II, ascended to that status because of innate qualities of the painting – or if circumstances pushed it to the top, and only after the fact do art experts argue for its supremacy based on the fact that it’s already become the Mona Lisa of legend. In other words, the Mona Lisa may be great simply because it’s the Mona Lisa, and perhaps had the disgruntled employee stolen another painting, da Vinci’s masterpiece would be seen as just another painting. (His description of seeing the painting for the first time mirrored my own: It’s kind of small, and because it’s behind shatterproof glass, you can’t really get close it.)

Without directly referring to it, Watts also perfectly describes the inexcusable habit of sportswriters to assign huge portions of the credit for team successes to head coaches or managers rather than distributing the credit across the entire team or even the organization. I’ve long used the example of the 2001 Arizona Diamondbacks as a team that won the World Series in spite of the best efforts of its manager, Bob Brenly, to give the series away – repeatedly playing small ball (like bunting) in front of Luis Gonzalez, who’d hit 57 homers that year, and using Byung-Hyun Kim in save situations when it was clear he wasn’t the optimal choice. Only the superhuman efforts by Randy Johnson and That Guy managed to save the day for Arizona, and even then, it took a rare misplay by Mariano Rivera and a weakly hit single to an open spot on the field for the Yanks to lose. Yet Brenly will forever be a “World Series-winning manager,” even though there’s no evidence he did anything to make the win possible. Being present when a big success happens can change a person’s reputation for a long time, and then future successes may be ascribed to that person even if he had nothing to do with them.

Another cognitive bias Watts discusses, the Halo Effect, seems particularly relevant to my work evaluating and ranking prospects. First named by psychologist Edward Thorndike, the Halo Effect refers to our tendency to apply positive impressions of a person, group, or company to their other properties or characteristics, so we might subconsciously consider a good-looking person to be better at his/her job. For example, do first-round draft picks get greater considerations from their organizations when it comes to promotions or even major-league opportunities? Will an org give such a player more time to work out of a period of non-performance than they’d give an eighth-rounder? Do some scouts rate players differently, even if it’s entirely subconscious, based on where they were drafted or how big their signing bonuses were? I don’t think I do this directly, but my rankings are based on feedback from scouts and team execs, so if their own information – including how teams internally rank their prospects – is affected by the Halo Effect, then my rankings will be too, unless I’m actively looking for it and trying to sieve it out.

Where I wish Watts had spent even more time was in describing the implications of these ideas and research for government policies, especially foreign aid, most of which would be just as productive if we flushed it all down those overpriced Pentagon toilets. Foreign aid tends to go to where the donors, whether private or government, think it should go, because the recipients are poor but the donors know how to fix it. In reality, this money rarely spurs any sort of real change or economic growth, because the common-sense explanation – the way to fix poverty is to send money and goods to poor people – never bothers to examine the root causes of the problem the donors want to solve, asking the targets what they really need, examining and removing obstacles (e.g., lack of infrastructure) that might require more time and effort to fix but prevent the aid from doing any good. Sending a boat full of food to a country in the grip of a famine only makes sense if you have a way to get the food to the starving people, but if the roads are bad, dangerous, or simply don’t exist, then that food will sit in the harbor until it rots or some bureaucrat sells it.

Everything Is Obvious is aimed at a more general audience than Thinking Fast and Slow, as its text is a little less dense and it contains fewer and shorter descriptions of research experiments. Watts refers to Kahneman and his late reseach partner Amos Tversky a few times, as well as other researchers in the field, so it seems to me like this book is meant as another building block on the foundation of Kahneman’s work. I think it applies to all kinds of areas of our lives, even just as a way to think about your own thinking and to try to help yourself avoid pitfalls in your financial planning or other decisions, but it’s especially apt for folks like me who write for a living and should watch for our human tendency to try to ascribe causes post hoc to events that may have come about as much due to chance as any deliberate factors.

The End of Ownership.

Aaron Perzanowski and Jason Schultz’s book The End of Ownership gives a surprisingly strong argument that our rights as consumers are rapidly being eroded by changes both in the law and in technology, so that we no longer own many things we might believe we do. In the era of digital goods from books and music and movies to software, we are still paying for the same content, but when once we purchased, now we merely “license” – even though most consumers probably aren’t even aware of the change.

For most of the history of commerce, if you bought a good, you got the good, and that was essentially that. If you bought a book, you owned that copy of the book. You were free to do with that copy as you wished, so long as you didn’t make unauthorized copies of it. You could lend it to someone, or you could sell it outright. The owner of the copyright on that book could not stop you from doing any of those things, nor could s/he repossess the book from you for any reason. The same is true of a patented good: if you buy a widget, you can resell the widget, even if the widget itself is covered by a patent. This is known as the “exhaustion principle” or the “first sale doctrine.” (I’m sticking with U.S. domestic laws on intellectual property here; the rules laws on international exhaustion are often less clear.) I own a special green-vinyl edition of A Tribe Called Quest’s single “I Left My Wallet in El Segundo;” I still own that record, but I could lend, sell, or donate it as I please, without the group’s permission, and without affecting ATCQ’s copyright to the underlying work.

In the digital realm, however, this principle has been superseded by licensing agreements – those things you’re given when you download a digital good or install a software update, which you don’t read but you click “Agree” anyway because let’s get on with this already. Those licenses say you don’t own the goods you’re paying for, even though you probably clicked on something that said the word “buy,” which strongly implies a purchase, not a license. Those agreements, known as end-user licensing agreements or EULAs, curtail the consumer’s rights in ways that the consumer may not understand or expect, resulting in an imbalance of information between buyer and seller where the former probably believes he’s acquiring more rights than he actually is, including the rights to make copies of the good for his personal use, and the right to retain the product in perpetuity.

Law professors Perzanowski and Schultz argue that this is a three-pronged problem. One, consumers believe they’re getting something they’re not. Two, companies are unilaterally abrogating rights afforded to consumers by federal and state laws. And three, Congress and federal courts have totally dropped the ball on the entire issue, passing laws that favor content creators at the expense of both consumers and the public good, or issuing contradictory rulings that reduce our rights in ways that consumers don’t understand and that help take away any semblance of ”ownership.”

The authors give copious examples, some of which were truly non-obvious to me. As the so-called “Internet of Things” expands to include more devices that don’t obviously need an internet connection but have one anyway – like the microwave in that Conway twit’s kitchen – then our rights of ownership are also affected. You might own the physical parts of the refrigerator, but you’re only licensing the software on it, so you can’t sell the fridge because you don’t own the whole thing. You may not be able to sell your smartphone for the same reason – the manufacturers can argue that you are only licensing the software on it, which means you own the device but not the entire unit to be able to sell it.

Why is this OK? The authors give the example of a hat that is only licensed to the purchaser, not sold, so the purchaser can’t transfer ownership of the hat via any method to anyone else. Would you buy that hat? Would you even understand the legalese that accompanies it? In another example, the authors pose the hypothetical of “single-use” car tires, which your tire license would prohibit you from repairing once they were damaged or worn out. Consumers have a specific expectation when they purchase something, but when you ‘purchase’ a digital good, those expectations exceed the reality, yet for some reason we accept this loss of purchaser rights in the digital realm without any real pushback.

What about libraries in the digital world? Some publishers, including HarperCollins (mine), have created programs for libraries to buy digital books, but with heavy restrictions on how libraries may lend them out; HarperCollins only allows one ‘copy’ of the book to be on loan at any time, and after a fixed number of borrowings (I think it’s 24), the library’s license to the book must be renewed. The publishers argue that such restrictions are necessary to avoid cannibalizing the market for book sales, and that the restrictions mirror the physical decay of books that are repeatedly handled and borrowed. I can understand the former, but the latter doesn’t hold water for me, since I recently borrowed a book, Martin Flavin’s Pulitzer-winning novel Journey in the Dark, from my local library, and the edition – worn, but intact – dated back to the late 1940s.

The authors do an excellent job of translating thorny legal questions into accessible language, and offer some very specific solutions that Congress could enact to solve many of these problems – and if Congress had ever shown an iota of interest in protecting consumer interests over those of copyright holders, well, I might have some hope. The legislative history of copyright law in the U.S. is essentially all anti-consumer, with copyright terms becoming longer and such laws on digital goods reducing consumer rights even further. The mere concept of copyright was to ensure content creators were sufficiently rewarded so that they’d continue to create – if you can’t make money off your creations, you’ll have to do something else to pay the bills. The concept was not intended to provide such legal protections for two human lifetimes, but that’s about where it stands now, because there are some very big companies out there who depend on long-term copyright protections, and they can spend to ensure that works don’t fall into the public domain when they were originally scheduled to do so. The parade of degradations of consumer rights seem unlikely to cease any time soon, and the end of that path could be the end of ownership.

Next up: Upton Sinclair’s novel Dragon’s Teeth, winner of the 1943 Pulitzer Prize for Fiction.

Grocery.

If you’re here, you almost certainly know I’m a fan of Michael Ruhlman’s work, whether it’s his narrative non-fiction books like The Making of a Chef or his indispensable cookbooks like Ruhlman’s Twenty, Ratio, or Egg. He’s also become a potent voice in the drive to get American consumers, who know more about food than ever before but seem to cook it less for themselves, to reconnect with the sources of their food for the good of our health and our planet. He brings those concerns to his non-fiction work for the first time in his newest book, Grocery: The Buying and Selling of Food in America, a work that simultaneously a paean to the American grocery store and a lament over the importance that processed foods play in our diet (and, perhaps, many of our first-world health problems).

Ruhlman does this by revisiting a regional grocery chain from his youth, Heinen’s, which has survived as an independent business when national chains have been snapped up by multinationals. Heinen’s is still run by the grandchildren of its founder, but they take a progressive view of the business and have shown agility larger chains haven’t by being quick to offer organic produce, prepared foods, and craft beers to consumers. The overarching structure of Grocery begins with a brief history of the grocery store – I remember A&P, but had no idea it was once the biggest company in the world – an then takes us department by department, explaining not just what’s in them but how the food (or not-food) gets to the store and how the markets profit off them.

Heinen’s early forays into non-traditional areas for grocers mirrors the industry’s movement as a whole, sometimes foreshadowing changes (like prepared foods, which accounts for between 4 and 8 percent of sales for each Heinen’s store) elsewhere, sometimes lagging, as with organics. Ruhlman specifically cites the changes wrought by Whole Foods, which, depending on your point of view, either found unserved demand for organic items and higher-quality ingredients or created that demand by offering the goods and marketing themselves well; and Wal-mart, which became the country’s main food retailer the day they sold their first box of Cheerios. The industry-wide shifts have allowed medium-sized chains to add value by offering specialty products, like the Lava Lakes lamb Heinen’s offers (with Ruhlman enduring an interesting adventure on the sheep farm to tell us about it) or some artisanal cheeses from makers who could never service a large national account.

Ruhlman’s always at his best when he’s writing first-person accounts, and that’s true even here, as he spends days with various Heinen’s executives and suppliers, as well as going shopping with one of his personal doctors, Dr. Sukol, who has very strong opinions on what is and is not food. That particular chapter is one of several that points out just how much sugar is in processed foods – more on that phrase in a moment – and how eating these “not food” products, in Dr. Sukol’s eyes, may be compromising our health. She says something that has become a sort of mantra for Ruhlman – that food is not “healthy;” we are “healthy,” and food can be nutritious or it can be harmful to our health (or, I’d add, sometimes both). Some of her opinions are based in sound science and others on working hypotheses (e.g., that glyphosate residues harm our intestinal microbiomes, because that chemical targets the shikimate pathway found in microbial metabolism but not in humans). She buys organic to avoid glyphosate and antibiotics, but doesn’t believe GM foods are harmful in and of themselves. She also says something is not food if you look at the ingredients and couldn’t buy them all individually in a grocery store; by that definition, to pick one example, almond milk is not food, even though the unsweetened version is nutritious and is a godsend to people who can’t drink milk.

Heinen’s also employs a full-time doctor to oversee its “wellness” section, and in my view this is where the author could have cast a more skeptical eye, because this “Dr. Todd” sells a lot of bullshit. He’s light on the science, throwing appeals to nature at Ruhlman in between advocacy of useless supplements like turmeric (the tricky chemistry of which means it does nothing useful in the body despite positive results in the test tube). Heinen’s, like all grocery stores – including Whole Foods – makes millions off selling bottled panaceas, nearly all of which do nothing and get by the consumer with vague promises of “promoting” health but no scientific evidence that they do anything at all. Ruhlman does indeed mention their uselessness and his own skepticism of a supplement-based diet, but I would probably have been thrown out of Heinen’s for pointing out all of the woo that Dr. Todd was spinning.

I enjoy when Ruhlman lets a little snark penetrate his thoughtful tone, like when he was behind a shopper at the grocery store who was buying fat-free “half and half,” a product that, ontologically speaking, cannot exist. It’s okay to disdain such abominable food choices – but Ruhlman emphasizes that corporate marketing has contributed to consumer confusion over what’s good for us and even what certain products might contain. (The entire discussion reminded me of bread vendors who made high-fiber breads by adding wood pulp, which almost certainly wasn’t what consumers thought they were consuming.) And the media have contributed to this by jumping on single studies that appear to identify single culprits for all our food-related health woes, first fat, then cholesterol (poor eggs), then salt, and now – although this one may have some legs – sugar, which appears in products under a variety of pseudonyms, including evaporated cane juice, dextrose, maltodextrin, brown rice syrup, or tapioca syrup. They’re all sugar, and by separating them out in the ingredients, manufacturers can avoid telling you that the #1 component of a product is sugar.

Grocery tends to stick to the very common and widely accepted distinction of processed foods, what Ruhlman describes as being in the center of the store, and the other foods, like meat, dairy, and produce, that are found around the store’s perimeter. (If you’ve heard the advice to shop the edges of the grocery store, those are the departments where you’ll spend your cash.) And I may be overly pedantic on this, but almost everything we eat is processed somehow. Take yogurt: First, it’s processed by bacteria, fermenting milk into yogurt. And second, it’s further processed by man, at least to put it in plastic, but often to add sweeteners, fruits, sometimes gels or gums, and other ingredients. (True Greek yogurt is strained of whey and lacks additional thickeners, but many brands sell “Greek” yogurt that is thickened with pectin or other agents.) The meat you buy at the butcher counter is processed too – a process Ruhlman details, explaining how more of the butchering is done at central locations today rather than in-store as it was a few decades ago. Very little of what we eat is truly “unprocessed.” And there are processed foods in the middle of the store that are quite nutritious – oats, nuts, seeds, whole grains, alternative milks (if unsweetened), maybe even dark chocolate. So don’t tell people to avoid “processed foods,” but tell them, as this book encourages, to read the labels and try to understand what you’re buying.

If everyone in America read Grocery, it would cause a cataclysmic shift in our food system. There would still be a market for Oreos and Frosted Flakes, for fast food and donuts and bad coffee, but the book points out how consumer demand can reshape the food production chain, and how retailers can reshape neighborhoods in turn by bringing better food choices to “food deserts,” underserved populations without easy access to quality food. It’s a potent call to action, as well-written as you’d expect from the author of Soul of a Chef, that should change your approach to feeding yourself and your family.

Superforecasting.

I’m a bit surprised that Philip Tetlock’s 2015 book Superforecasting: The Art and Science of Prediction hasn’t been a bigger phenomenon along the lines of Thinking Fast and Slow and its offshoots, because Tetlock’s research, from the decades-long Good Judgment Project, goes hand in hand with Daniel Kahneman’s book and research into cognitive biases and illusions. Where Kahneman’s views tend to be macro, Tetlock is focused on the micro: His research looks at people who are better at predicting specific, short-term answers to questions like “Will the Syrian government fall in the next six months?” Tetlock’s main thesis is that such people do exist – people who can consistently produce better forecasts than others, even soi-disant “experts,” can produce – and that we can learn to do the same thing by following their best practices.

Tetlock’s superforecasters have a handful of personality traits in common, but they’re not terribly unusual and if you’re here there’s a good chance you have them. These folks are intellectually curious and comfortable with math. They’re willing to admit mistakes, driven to avoid repeating them, and rigorous in their process. But they’re not necessarily more or better educated and typically lack subject-matter expertise in most of the areas in the forecasting project. What Tetlock and co-author Dan Gardner truly want to get across is that any of us, whether for ourselves or for our businesses, can achieve marginal but tangible gains in our ability to predict future events.

Perhaps the biggest takeaway from Superforecasting is the need to get away from binary forecasting – that is, blanket statements like “Syria’s government will fall within the year” or “Chris Sale will not be a major-league starting pitcher.” Every forecast needs a probability and a timeframe, for accountability – you can’t evaluate a forecaster’s performance if he avoids specifics or deals in terms like “might” or “somewhat” – and for the forecaster him/herself to improve the process.

Within that mandate for clearer predictions that allow for post hoc evaluation comes the need to learn to ask the right questions. Tetlock reaches two conclusions from his research, one for the forecasters, one for the people who might employ them. Forecasters have to walk a fine line between asking the right questions and the wrong ones: One typical cognitive bias of humans is to substitute a question that is too difficult to answer with a similar question that is easier but doesn’t get at the issue at hand. (Within this is the human reluctance to provide the answer that Tetlock calls the hardest three words for anyone to say: “I don’t know.”) Managers of forecasters or analytics departments, on the other hand, must learn the difference between subjects for which analysts can provide forecasts and those for which they can’t. Many questions are simply too big or vague to answer with probabilistic predictions, so either the manager(s) must provide more specific questions, or the forecaster(s) must be able to manage upwards by operationalizing those questions, turning them into questions that can be answered with a forecast of when, how much, and at what odds.

Tetlock only mentions baseball in passing a few times, but you can see how these precepts would apply to the work that should come out of a baseball analytics department. I think by now every team is generating quantitative player forecasts beyond the generalities of traditional scouting reports. Nate Silver was the first analyst I know of to publicize the idea of attaching probabilities to these forecasts – here’s the 50th percentile forecast, the 10th, the 90th, and so on. More useful to the GM trying to decide whether to acquire player A or player B would be the probability that a player’s performance over the specified period will meet a specific threshold: There is a 63% chance that Joey Bagodonuts will produce at least 6 WAR of value over the next two years. You can work with a forecast like that – it has a specific value and timeframe with specific odds, so the GM can price a contract offer to Mr. Bagodonuts’ agent accordingly.

Could you bring this into the traditional scouting realm? I think you could, carefully. I do try to put some probabilities around my statements on player futures, more than I did in the past, certainly, but I also recognize I could never forecast player stat lines as well as a well-built model could. (Many teams fold scouting reports into their forecasting models anyway.) I can say, however, I think there’s a 40% chance of a pitcher remaining a starter, or a 25% chance that, if player X gets 500 at bats this season, he’ll hit at least 25 home runs. I wouldn’t go out and pay someone $15 million on the comments I make, but I hope it will accomplish two things: force me to think harder before making any extreme statements on potential player outcomes, and furnish those of you who do use this information (such as in fantasy baseball) with value beyond a mere ranking or a statement of a player’s potential ceiling (which might really be his 90th or 95th percentile outcome).

I also want to mention another book in this vein that I enjoyed but never wrote up – Dan Ariely’s Predictably Irrational: The Hidden Forces that Shape Our Decisions, another entertaining look at cognitive illusions and biases, especially those that affect the way we value transactions that involve money – including those that involve no money because we’re getting or giving something for free. As in Kahneman’s book, Ariely’s explains that by and large you can’t avoid these brain flaws; you learn they exist and then learn to compensate for them, but if you’re human, they’re not going away.

Next up: Paul Theroux’s travelogue The Last Train to Zona Verde.

Think Twice

Michael Mauboussin’s short book on the psychology of bad decisions, Think Twice, features an endorsement on its cover from Billy Beane, saying he hopes his competitors don’t read the book. While it doesn’t go into anywhere near the depth on the psychology (and neurology) of decision-making as Daniel Kahnemann’s Thinking, Fast and Slow, Mauboussin’s book covers much of the same ground and does so in a quick, superficial way that might reach more people than Kahnemann’s more thorough but often dense treatise could.

Mauboussin’s book carries the subtitle “Harnessing the Power of Counterintuition,” but I would describe it more as a guide to avoiding decisions based on easily avoidable mental traps. Think Twice has eight chapters dealing with specific traps, most of which will be familiar to readers of Kahnemann’s book: base-rate neglect, tunnel vision, irrational optimism, overreliance on experts, ignoring context, phase transitions (black and grey swans), and conflating skill and luck. Where Kahnemann went into great depth with useful examples and sometimes less-useful descriptions of fMRI test results, Mauboussin writes like he can’t get to the point fast enough – an often desirable trait in the popular business non-fiction section of the bookstore, since the assumption is that business executives don’t have time to read (even if the book might save millions of dollars).

That lightweight approach still gives Mauboussin plenty of space to hammer home the critical lessons of the book. Some of his examples don’t need a lot of explanation, such as pointing out that playing French music or German music in a wine store aisle with wines from both countries skewed consumer choices – even though those consumers explicitly denied that the music affected their choices. (Context matters.) He targets sportswriters directly when discussing their (our) difficulty (or inability) in distinguishing skill from luck – and, in my experience, fans often don’t want to hear that something is luck, even when the sample size is so small that you couldn’t prove it was skill no matter how broad the confidence test. He mentions The Boss going off in the papers when the Yankees started 4-12 in 2005, and writers buying right into the narrative (or just enjoying the free content Steinbrenner was providing). But we see it every October, and during every season; are the Giants really the best team in baseball, or is there an element of luck (or, to use the more accurate term, randomness) in their three championship runs in five seasons? Yet we see articles that proclaim players to be clutch or “big game” every year; my colleague Skip Bayless loves to talk about the “clutch gene,” yet I see no evidence to support its existence. I think Mauboussin would take my side in the debate, and he’d argue that an executive making a decision on a player needs to set aside emotional characterizations like that and focus on the hard data where the sample sizes are sufficiently large.

His chapter on the world’s overreliance on experts also directly applies to the baseball industry, both within teams and within the media. It is simply impossible for any one person to be good enough at predictions or forecasting to beat a well-designed projection system. I could spend every night from February 10th until Thanksgiving scouting players, see every prospect every year, and still wouldn’t be better on a macro level at predicting, say, team won-lost records or individual player performances than ZiPS or Steamer or any other well-tested system. The same goes for every scout in the business, and it’s why the role of scouting has already started to change. Once data trackers (like Tracman) can provide accurate data on batted ball speeds/locations or spin rate on curveballs for most levels of the minors and even some major college programs, how much value will individual scouts’ opinions on player tools matter in the context of team-level decisions on draft picks or trades? The most analytically-inclined front offices already meld scouting reports with such data, using them all as inputs to build better expert systems that can provide more accurate forecasts – which is the goal, because whether you like projection systems or not, you want your team to make the best possible decisions, and you can’t make better decisions without better data and better analysis of those data. (Mauboussin does describe situations where experts can typically beat computer models, but those are typically more static situations where feedback is clear and cause/effect relationships are simple. That’s not baseball.)

Mauboussin’s first chapter describes the three central illusions that lead to irrational optimism, one we see all the time in baseball when teams are asked to evaluate or potentially trade their own prospects: the illusions of superiority, optimism, and control. Our prospects are better than everyone else’s because we scout better, we develop better, and we control their development paths. When you hear that teams are overrating prospects, sometimes that’s just another GM griping that he can’t get what he wants for his veteran starter, but it can also be this irrational optimism that leads many teams to overrate their own kids. There’s a strong element of base-rate neglect in all of these illusions; if you have a deep farm system with a dozen future grade-50 prospects, you know, based on all of the great, deep systems we’ve seen in the last few years (the Royals, Rangers, Padres, Red Sox, Astros) that some of those players simply won’t work out, due to injuries, undiscovered weaknesses, or just youneverknows. A general manager has to be willing to take the “outside view” of his own players, viewing them through objective lenses, rather than the biased “inside view,” which also requires that he be able to take that view because he has the tools available to him and the advisers who are willing to tell him “no.”

The passage on unintended consequences is short and buried within a chapter on complex adaptive systems, but if I could send just two pages of the book to new MLB Commissioner Rob Manfred, I’d send these. Mauboussin gives two examples, one of incompetent wildlife management in Yellowstone Park, one of the feds’ decision to let Lehman Brothers fail and thus start the 2008 credit crisis, both of which involve single actions to a complex system that the actors didn’t fully understand (or try to). So when MLB tries to tinker with the draft, or fold in the July 2nd international free agents into the rule 4 draft or a new one, or changes free agent compensation rules … whatever they do, this is a complex system with hundreds of actors who will react to any such rules changes in ways that can’t be foreseen without a look at the entire system.

The seven-page concluding chapter is a great checklist for anyone trying to bring this kind of “counterintuitive” thinking into an organization or just into his/her own decision-making. It’s preventative: here’s how you avoid rushing into major decisions with insufficient data or while under a destructive bias. I can see why Beane doesn’t want other GMs or executives reading this; competing against people who suffer from these illusions and prejudices is a lot easier than competing against people who think twice.

The Checklist Manifesto.

I learned of Atul Gawande’s brief business book The Checklist Manifesto: How to Get Things Right through a positive mention of it in Daniel Kahneman’s fantastic book on cognitive psychology, Thinking, Fast and Slow. Gawande, a successful surgeon in Boston, wrote two books on improving medical care through optimizing processes (rather than throwing money at new equipment or drugs). His third book is aimed at a more general audience, extolling the virtues of the checklist as a simple, effective way to reduce the frequency of the most avoidable errors in any complex system, even eliminating them entirely, saving money and even lives at a near-zero upfront cost.

When Gawande discusses checklists, he’s using the term in the sense of a back-check, a list that ensures that all essential steps have been taken before the main event – a surgery, a plane’s takeoff, a large investment – occurs. This isn’t a to-do list to get you through the day, the type of checklist I make every morning or the night before to make sure I don’t forget any critical tasks, work or personal, from paying bills to making phone calls to writing a dish post. Gawande instead argues for better planning before that first incision, saying that key steps are often overlooked due to a lack of communication, excessive centralization in a single authority (the surgeon, the pilot, etc.), or focus on more urgent steps that detracts from routine ones.

Gawande illustrates his points about the design and use of checklists primarily through his own experiences in surgery and through his work with the WHO on a project to reduce complication rates from surgery in both developed and developing countries – a mandate that included the requirement that any recommendations involve little or no costs to the hospitals. That all but assured that Gawande’s group would only be able to recommend process changes rather than equipment or hiring requirements, which led to a focus on what steps were often skipped in the operating room, deliberately or inadvertently. Several common points emerged. For example, other medical personnel in the room saw surgeons as authoritarian figures and wouldn’t speak up to enforce key steps like ensuring antibiotics were being delivered prior to incision, or critical information wasn’t passed between team members before the operation began. To solve these issues, Gawande needed to devise a way to increase communication among team members despite superficial differences in rank.

The group took a cue from aviation, with Gawande walking the reader back to the creation of preflight checklists and visiting Boeing to understand the method of developing checklists that work. (There’s been some backlash to Gawande’s recommendations, such as the fact that surgeons can “game” a checklist in various ways, detailed in this NEJM subscriber-only piece.) A checklist must be concise and clear, and must grab the lowest-hanging fruit – the most commonly-missed steps and/or the steps with the greatest potential payoff. The checklist also has a secondary purpose – perhaps even more important than making sure the steps on the list have been followed – which is increasing communication. Gawande fills in the blanks with examples from medicine, aviation, and finance of how simple and perhaps “stupid” errors have helped avoid massive mistakes – or how skipping steps or hewing to old hierarchies of command have led to great tragedies, including the worst aviation disaster in history, the 1977 runway crash of two Boeing 747s at Tenerife North Airport in the Canary Islands, killing 583 people. (This isn’t a great book to read if you’re afraid of flying or of surgery.)

Gawande reports positive results from the implementation of pre-surgery checklists in both developed and developing countries, even in highly challenging conditions in Tanzania, Jordan, and India. Yet he also discusses difficulties with buy-in due to surgeons being unwilling to cede any authority in the operating room or to divert attention from what they see as more critical tasks. Acceptance of checklists appears to have been easier in aircraft cockpits, while in the investment world, Gawande presents a little evidence that checklists have made virtually no inroads despite a few investors finding great success in using them to override their emotional (“fast thinking”) instincts.

Even if you’re in an industry where checklists don’t have this kind of immediate value, it’s easy to see how they might apply to other fields with sufficiently positive ROIs to make their implementation worth considering. A major league team might have a checklist to use before acquiring any player in trade, for example – looking at recent reports and game logs to make sure he’s not injured, talking to a former coach or teammate to ensure there’s no character issues, etc. A well-designed blank scouting report is itself a checklist, a way of organizating information to also force the scout to answer the most important questions on each player. (Of course, having pro scouts write up all 25 players on each minor league team they scout runs counter to that purpose, because they’re devoting observation time to players who are completely irrelevant to the scout’s employers.) The checklist is more than just a set of tasks; it’s a mindset, a way of forcing communication on group tasks while also attempting to avoid high-cost mistakes with a tiny investment of time and attention. If the worst thing you can say about an idea is that people need to be convinced to use it, that’s probably a backhanded way of saying it’s worth implementing.

Next up: I’m about halfway through Ursula K. Le Guin’s utopian/dystopian novel The Dispossessed.

Too Big to Fail + the Saturday Five.

I posted some notes on Red Sox and Cleveland high-A prospects yesterday (from a game on Wednesday), and my first mock draft of 2012 went up on Tuesday. I also chatted on Thursday.

I finally finished the audiobook of Andrew Ross Sorkin’s Too Big to Fail, an exhaustively researched look at the 2008 financial crisis from the perspective of executives inside the various investment banks that were teetering on the brink of collapse, as well as the perspectives of the various government executives trying to stave off a depression. It is an outstanding work of investigation, compiled from what I assume is an enormous number of sources, but the result did very little to explain the causes of the crisis (as in, how did these very bright bankers end up in such stupid positions?) and was a very dull, clinical listen.

By comparison, I listened to an audio version of Michael Lewis’ first book on the subject, The Big Short, which looked at the crisis from the perspectives of several investors who saw it coming and reaped huge rewards, and while it’s not as thorough and is significantly shorter, it was far more entertaining and yet also went more into the causes of the meltdown. Lewis is a fantastic prose writer, and even if that book shared some of the, um, sharpening tendencies he showed in Moneyball (the book, not the film), making his villains a little too villanous (even Lewis’ mother says of her son, “he never lies, but he tends to exaggerate a little”), it did more to at least start to explore some of the questions around how these large investment banks and AIG ended up in a state of virtual default. (Lewis’ heroes, and others like them, made the disaster more disastrous by betting on its inevitability, so their heroism is probably up for debate.)

Sorkin’s book concerns itself more with the egos of the players atop the major investment banks as they’re collapsing – Lehman, Morgan Stanley, Goldman Sachs, even commercial banks like Wachovia – and the quick, if not always perfect, thinking of Tim Geithner (then President of the New York branch of the Federal Reserve) and Henry “Hank” Paulsen (then Secretary of the Treasury, later succeeded by Geithner). I can’t fathom the amount of work that went into reconstructing all of these meetings and conversations … but the result is so clinical that it kept losing my attention. Sorkin’s retelling took some very dramatic events and made them feel drawn-out and dry. Maybe that’s a function of his prose; I’m more inclined to think we ended up with more detail than we needed.

The links…

Can you call a 9-year-old a psychopath? That piece, from the New York Times, might be one of the best articles I’ll read all year. Terrifying in its implications, yet thorough and quite neutral in its approach.

Preparing fugu, or blowfish, the deadly Japanese fish dish which most of you probably know from an early Simpsons episode. Japan is easing the requirements for chefs to earn licenses to prepare it.

This Tuesday’s special edition of the BBC Newshour podcast – the only podcast to which I subscribe – focused on the Bo Xilai affair, and it is a tremendous work of impartial analysis with enough context to get you up to speed. (Link is to the mp3 file itself.)

I had the debut of the Food Network series Restaurant Stakeout, featuring my favorite Vegas restaurant, Firefly, saved on the DVR, but after watching it for 20 minutes last weekend I turned it off in disgust. Turns out I had good reason to dislike the show, as there are serious allegations that the ‘reality’ show is largely staged.

I’m excited about Freshpaper, a small sheet of paper that naturally inhibits the growth of fungi on fresh produce, but its backstory is also quite interesting. Buying fresh berries, even in this dry climate, usually means eating half of it and throwing the other half in the compost bin. I just placed a small order and will report back on how it works.

Five laughable sports leagues.

My editors at ESPN have always hammered home one point, even mentioning it before I was hired: Readers love lists. That’s why we rank everything – prospects, draft prospects, free agents, and so on. And I guess I’m just as susceptible as any other reader, since I was sucked into Mental Floss’s various lists (discovered by way of Shysterball), including their list of 5 Sports Leagues That Didn’t Make It, including Roller Hockey International and the WFL.

I’m curious why they stopped at five, though. I’ve always been fascinated by the business of sports leagues – a sort of empires rising and falling without all the war and death and backstabbing (okay, some backstabbing) – particularly the ways in which they respond to success (overexpansion, usually) and setbacks. I imagine this economy will prove particularly tough going for some of the fringe leagues out there, such as the National Lacrosse League, which hasn’t exactly been a hallmark of stability but is still going after 22 years with one of its original franchises still extant. (I’ve been to probably half a dozen NLL games, although none since the original Boston Blazers went under in 1997.)

Anyway, here are five other leagues that didn’t make it and included some silliness:

  • The North American Soccer League. This league did at least have a peak, packing Giants Stadium for New York Cosmos games and employing some of the best players in the world, including Pele, but they expanded like crazy, ran up huge debts, tried to run a winter indoor season to compete with the similarly ill-fated MISL, and – worst of all – named a team the Tea Men, which was marginally acceptable when they were in New England, but just plain stupid when the team moved to Jacksonville and kept the nickname.
  • The American Lacrosse League. This ALL didn’t finish its first season, in 1988, because the entire operation was a financial scam run by the two founders. As if that wasn’t bizarre enough, the league included five teams in the northeast … and one in Denver. That’s a good way to manage your travel costs.
  • The National Professional Soccer League. Originally called the American Indoor Soccer Association, the NPSL used a weird scoring system where goals could be worth more points if they were shot from farther away. It didn’t help.
  • Major League Volleyball. A women’s volleyball league that lasted a year and a half, and part of the now-quaint trend of giving women’s sports teams feminine names like the Dallas Belles. I actually am surprised that there hasn’t been an effort to start a men’s professional volleyball league in the United States; while it may always be a fringe sport, it’s very popular in other countries (face it – we are a country of people from other countries), is fun to watch, and doesn’t require construction of giant or single-use facilities. But if there’s been a financially successful women’s pro league in any sport in the U.S., it’s news to me – and no, the WNBA doesn’t count.
  • World Basketball League. Another of my all-time favorite wacko sports leagues, for two reasons. First, the league had a height restriction: Players over 6’5″ were ineligible to play in the league. Second, the league was funded with money the founder had embezzled from his other company, the discount pharmacy chain Phar-Mor. I thought that Bo Jackson was drafted by an Orange County entry in this league, although the one article I managed to find on the subject identifies that league as the International Basketball Association, which appears to have held a draft (easy) but not to have played a game (hard).

The true cost of panic.

A must-read op ed today from economist Arthur Laffer, probably best known for the Laffer curve. Laffer argues that the economy would bounce back nicely if the government would just stay the hell out of the way:

Whenever the government bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least $130 billion in taxes, where the $30 billion extra is the cost of getting government involved.

If you don’t believe me, just watch how Congress and Barney Frank run the banks. If you thought they did a bad job running the post office, Amtrak, Fannie Mae, Freddie Mac and the military, just wait till you see what they’ll do with Wall Street.

He has harsh words for just about everyone involved, crossing party lines, and points out that the stock market doesn’t seem to believe either Obama or McCain is capable of providing a solution. It’s sobering, but unlike 99% of the gloom-and-doom you’ll read, it’s grounded in sound theory rather than a desire for attention. In fact, perhaps if Laffer got more attention, we’d have better solutions.

Some links on the economy.

Been collecting a few of these links over the last week with some intent to write a short column about the topic, but that’s not happening, at least not in a timely fashion, so here are the links for those of you looking for further reading.

A Thumbs Up From the Ivory Tower: In general, econ professors approve of the idea of injecting capital into the banks rather than a government purchase of bad assets, although the new plan is far from perfect.

Gordon Does Good: Grumpy Paul Krugman gives credit to UK Prime Minister (and former Chancellor of the Exchequer) Gordon Brown for pushing the recapitalization idea when the U.S. was pushing the bad-asset purchase plan. I generally don’t agree with Krugman, but he presents a very strong argument here until he goes off the rails by saying that “All across the executive branch, knowledgeable professionals have been driven out; there may not have been anyone left at Treasury with the stature and background to tell Mr. Paulson that he wasn’t making sense.”

How did it all happen?: A sort of pop-psychology take on the fallacies and (bad) thought processes that played into the real-estate bubble and subsequent credit-market meltdown. It’s thought-provoking, but it’s all argument and no evidence.

Denmark Offers a Model Mortgage Market: George Soros is certainly not among my favorites – his attempts to buy the 2004 election for Kerry and his gleeful puncturing of Asian market bubbles in the 1990s come to mind – but he’s positively tame here in describing a safe, strong way to continue the securitization of home loans.