In Kansas City a security guard has just let an employee in without the proper name badge.
In Oakland the longshoremen are working to rule.
We design the most wonderful work systems. They have carefully crafted rules. And then people come along and muck them up.
At a company in Kansas City the security system rules say that no one, not even the president of the company, should be allowed into the company building without the proper badge. But the security guard ignored that rule.
The guard knew Tom. They'd both worked at the company for years. And Tom told the guard that he'd accidentally left his badge in his desk drawer the night before. The guard made an exception to the rule because he thought that things would work better that way.
It happens all the time. There’s the clerk in credit who made an exception to the credit policy. There's the sales manager who approved a product substitution from the allowed product mix on another order. There's the production supervisor that let one of his workers take some time to visit an ailing parent, even though the worker didn't have any vacation or sick days left.
These folks are the lubricants in the wheels of commerce. They keep things running even when the systems – designed by supposedly brilliant people – don’t quite work.
Sometimes it goes the other way. Sometimes human beings use the rules to defeat the system or the boss.
Out on the West Coast the people who work the docks have gone on strike. It's a nasty strike. There’s a lot of anger and resentment and mistrust.
Now a court has ordered the longshoremen back to work. And they’re going. Slowly. What they’re going to do is a classic time-honored tactic of labor called “working to rule.”
They’ll do everything they’re supposed to do. They’ll load and unload the trucks and the ships. But they’ll do it exactly the way the rulebook says. They won’t be rolling through any stop signs. They won’t be cutting any breaks short. They'll be attending the safety briefings they used to avoid, and insisting that the instructor take the full allotted time.
They'll work exactly the way the rulebook says they're supposed to. And they won't be very productive. Working to rule is a way to beat the boss and use the system against itself.
People are funny. They do things for their own reasons and those reasons often have nothing to do with what the boss wants, what the rulebook says, or sometimes, even, their own best interest. That's a big problem for economists.
This year's Nobel Prize in Economics was announced last week and it took me back to the days when I was in school. I had to take economics courses for my degree. They made me crazy.
They talked about people whom they insisted on calling consumers. They described how those people acted. But the people they described didn’t act like any people I knew.
The consumers they talked about always knew all the options available to them. They knew everything they needed to make a decision. The people I knew never had that luxury. They made decisions based on partial knowledge, seasoned with their own experience and the opinions of their friends.
The consumers the economists talked about were math whizzes. They could calculate probabilities in their heads. I’m better at math than most people and I can’t do that, even with a calculator.
The consumers in those textbooks and courses were always completely rational. They were more like Mr. Spock on Star Trek than they were like people. I didn't know any people like that.
A few years back I was with the owner of a client trucking company in his office. The purchasing agent brought in an order for tires. Bob, the owner, handed it back to him. "We don't do business with this guy," he said, "When I was starting out he wouldn't give me credit and he treated me like dirt."
"But he's giving us a great deal," pleaded the purchasing agent, "if we don't take it we're losing a lot of money."
"Right," Bob snapped, "But it's my money."
In the beginning economists understood folks like Bob and all the other folks I knew. In the beginning economists were much more like philosophers than they were like mathematicians. In fact, one of the very best books ever written to help you understand Economics, by Robert Heilbroner, is called The Worldly Philosophers.
That began to change in the early 20th Century when physics became the science that everybody loved to emulate. People in every other field wanted the analytical rigor that went with physics. The result was that they started to do more mathematics.
By the end of World War II “Physics Envy” was firmly in place in American and worldwide intellectual circles. In business we’d had several years of management consultants showing us how to streamline operations. They went mathematical during the Second World War with the development of the discipline of Operations Research.
Many economists caught the bug. They fell in love with their equations. They decided that mathematical models were better than old-fashioned reasoning. And so they set about modeling, without paying a lot of attention to whether the models accurately represented reality.
More and more economics moved away from philosophy and toward abstract mathematical thought. It must have been exciting for Economists. I hated it. So did lots of other people.
Fortunately, some of those people were also economists and two of them, Daniel Kahneman and Vernon Smith, were the recipients of this year’s Nobel Prize in economics. They came to their work in what has started to be called behavioral economics quite differently.
Smith, who teaches economics and law at George Mason University, is an experimental economist. That’s something you weren’t supposed to be. You could study economics. You could model economics. But you weren’t supposed to be able to conduct experiments in economics. Smith showed that you could.
He developed experiments that helped improve our understanding of how markets worked by replicating them in small situations. Among the things he learned was that there needed to be adequate reward for the students who participated in order to produce good results.
Kahneman isn’t actually an economist at all. He’s a psychologist and a Professor of Psychology and Public Affairs at Princeton.
Kahneman essentially looked around and said what I – and other economics students – have said for years. “Gosh, those people in the textbooks don’t look like any people I know.”
For most of us that would be enough. Kahneman set out to describe the differences and the humanity of people in ways that could be used in a science of economics.
Economists use the language of John Stuart Mill, “utility,” to describe how people make decisions. That utility is expressed in terms of gains in wealth from different possible scenarios, multiplied by the probability of the scenario occurring. Just about everyone who’s made a decision about which kind of toothpaste to buy knows that we don’t work that way, but somebody needed to prove it. Kahneman and his co-worker Amos Tversky, who died in 1996, proved it.
They proved a number of things that most folks with common sense knew all along. There was anchoring, the idea that people are often overly influenced by an outside suggestion. There were different kinds of magical and quasi-magical thinking. And there was all that messy emotion.
This year’s Nobel Prize is very much a case of science, or at least academia, catching up with common sense. That's a good thing. In the meantime, while all of this is debated in academic journals and symposia, people will go on doing just what they’ve always done.
In Kansas City and all over the world people will make exceptions to the policies they’re supposed to enforce, because it seems like the right thing to do – or because it’s easier.
In Oakland the longshoremen will work to rule until they figure they’ve gotten a fair deal.
No matter how well we’ve planned and no matter how much we think we know, we’ll continually be surprised by the humans around us.
This feature appeared on 14 October 2002
