Asymmetrical Information

A friend of mine is an IP lawyer who does a lot of work with drug co's. He told me that lots of new drugs get developed for that reason via private equity. Private equity funds are more willing to take 10-20 bets and hope that one pans out. They accept more vol in return for more alpha.

In other words, don't listen to bad ideas, except when they're good.

I am so blown away by that insight.

In other words, don't listen to bad ideas, except when they're good.

I am so blown away by that insight.

My dear lad, may I suggest instead that you were blown away by a liquor cabinet? The moral to the quoted story was quite plain: to succeed in highly innovative industries, you must be willing to take significant risks, perchance even unto failure, in order to discover the good idea. In the future, do read more carefully!

Also, I might mention that the Principles of Logical Reasoning were quite miffed that you issued snark toward our hostess on this occasion. This being her first post after a week-long dry spell, they will take any content they can get. They are waiting to jump you at the front entrance; I suggest using the side door instead.

This is closely related to the smart-talk trap, as identified by Pfeffer and Sutton.

There's an old engineer's saying: If you can't make mistakes, you can't make anything.

Some of this also happens because of technological maturity of certain processes. At some point, it is no longer worth trying to figure out a new/better way of doing X, but rather trying to figure out how NOT to HAVE to do X.

That is, the more mature a particular indtustry / technology is, the more it costs for improvement (law of diminishing returns). And don't forget the non-trivial cost of regulation / IP / litigation.

Now, clearly, sometimes people really can improve things. But honestly, given the number of years, amount of money, and intellectual talent being thrown at some of these problems, we are quickly reaching the point where return on equity really, truly might justify a 'No, let's go do something else with our money.'

The biggest risk is that habitual conservativeness may breed an envrionment that discourages even this. And so the companies don't make anything new, and don't find something better to do with their money.

My dear lad, may I suggest instead that you were blown away by a liquor cabinet? The moral to the quoted story was quite plain: to succeed in highly innovative industries, you must be willing to take significant risks, perchance even unto failure, in order to discover the good idea. In the future, do read more carefully!

My dear [insert patronizing term of British endearment here], take that keen thought of yours and extrapolate it another baby step. The whole problem of distinguishing good, innovative ideas from bad, loss-inducing ones is preempted by distinguishing the good from the bad before you take the risk in the first place. The only good that can come from blithely assuming the risks of a terrible idea is to inform future decision-makers not to make the same risk. Good ideas do not logically spring forth from a business culture that accepts repeated failures as a roundabout means of digging a kernal of gold from the scat pile.

If the point were that a good idea is worth trying more than once despite earlier failure, then of course I wouldn't disagree. But I don't think that's the issue. I think the author of the post Jane quoted is saying that decision-makers shouldn't be so risk-adverse that they misjudge a good idea as a bad one. And I guess that's fine, so far as it goes. I just don't think it goes very far.

Also, I might mention that the Principles of Logical Reasoning were quite miffed that you issued snark toward our hostess on this occasion.

And I might mention that invoking the "Principles of Logical Reasoning" is a really weird and kinda gay way of saying you disagree. Besides, I wasn't snarking at Jane. I was snarking at the guy who wrote the original post. And a well-deserved snark, I might add.

"managers had figured out that by saying "No" they were right all the time"

It is a good tactic for dealing with your children. If you say yes, you cannot negotiate.

Immoralist, you might want to wander over to the site and post your disagreement in the comment section to the original post. None of the drug-company veterans over there seem to have found it bizarre, but perhaps we're just ravaged by years of chemical exposure.

My point wasn't so much about the problem of mistaking a good idea for a bad one. It was that, to a good approximation, all the ideas we have for new drugs look like bad ones. But we can't act as if they all are. And it's not that we "accept" repeated failure as a business model - we budget for it, but at the same time we protest it loudly and spend untold piles of cash trying to change it. There's a fortune waiting for anyone who can do better, y'know.

If you are in the right industry, you can lay off the expense of the bad idea on a third party, say, the government, until enough cash is thrown at the situation to make the idea work. I keep wondering, if the V-22 Osprey eventually becomes a useful military aircraft (it has now been authorized for full production), after gigantic cost overruns and many, many setbacks, if it then might eventually become a very profitable aircraft for Boeing in the commercial aircraft industry, as the development costs will have been borne by the taxpayer, and the plane itself will have some revolutionary capabilities, in terms of being able to transport a lot of people over pretty good distances, without use of long runways. It could prove the foundation for a new start-up airline, which would use this aircraft exclusively.

Immoralist:

You seem to have missed the idea brought up by Innovator's Dilemma that very many good ideas look like, and even are, bad ideas. So much of what we know about existing processes assures us that innovation is impossible, or at least uneconomic and a bad idea for our firm.

Just look at the continued 40 year civil war between the old school phone engineers and the computer people (bell heads vs bit heads). There are very good reasons why a bell engineer would view any sort of lossy, unreliable data connection as a bad idea, bad technology, and something that had to be stopped.

The idea that we can somehow not take the same risks in the future in technology development is the statement of an imbecile who I hope has never designed or invented anything. We can try to not make specific mistakes in running projects, experiment design, economic projections... but there will always be the fact that there is so much unknown information that creates an unquantifiable risk of the project suceeding. You can quantify the cost of making refinements to a given technology (will it pay to make a sustained release version of a pill?), but you can never accurately determine if a compound will have too many side effects until you actually spend the money.

Nothing new here. C Northcote Parkinson had this one pegged back in the late 50s-early 60s in a chapter titled (IIRC) "The Abominable No-Man". Basically, the idea was that in any bureaucracy the safest course is to say "No" to all except the safest bets, because one can be held accountable for failures while there's much less likely to be accountability for a missed opportunity.

Ah, how best to deal with the objection "But if that were going to work, it would have been invented already"? My innovatory powers deserted me at that moment.

We are all in Parkinson's debt. I have what I think are his complete works, and have several times seen the subjects of them acted out in front of my eyes.

Derek,

Tres' True ~!~

I think that if we search for those enterprises most entenched in the economic firmament by regulatory fiat, we'll find the highest correlating instances of this type of thinking.

Is it mere coincidence that America's "Gilded Age" (1865-1914) was antecedent the Leviathan State?

Mark,

I think you may have a real valuable insight, but your last sentence doesn't state the implied mechanism, so I don't understand what you are saying. How do you think America's "Gilded Age" (1865-1914) may have helped cause the Leviathan State?

Thanks,

Tom

Tom,

The operative definition of "antecedent" that I was working with is: Main Entry: 2antecedent
Function: adjective: PRIOR synonym see PRECEDING

as opposed to another, from Logic, the conditional member of a hypothetical proposition.

So, I was giving rise to the idea that, along the time line of History, we experienced what we now refer to as "The Gilded Age" before the appearance of the Leviathan in our midst, the overarching State.

Hope this clarifies...

"Basically, the idea was that in any bureaucracy the safest course is to say "No" to all except the safest bets, because one can be held accountable for failures while there's much less likely to be accountability for a missed opportunity."

Isn't this attitude alive and well in HR departments these days?

RGT,

Of course, The regulated mirror the Regulator.

Just think where you'd find the kind of HR departments you're referring to... I'm quite sure it isn't at Flo's To and Fro Cleaning Service.

Here's betting they're at Leviathan's fellow-travelers : Big Corpo, no?

"No" = safe bet is the reigning dynamic of educational administration. There is so little connection between good ideas and "profits" (revenues) or even survival, in the minds of the administration. Only certain Golden Children are allowed to have ideas. When this happens, it's usually a crappy idea that is hailed as the next best thing since sliced bread.

They claim to want to be a Learning College (Learning Organization - Peter Senge) but they're beating a dead horse as long as they operate as command and control, bureaucratic, top down organizations that squelch conversation and idea sharing among units (anyone outside your department).

In contrast...among my engineer friends...when their (huge ginormous company) said no to a fantastic and revolutionary idea, they quit and formed their own company and followed through and are multibillionaires retired at 40 (if they wanted to).

Can't do that in education and government services.

MEH

"Here's betting they're at Leviathan's fellow-travelers : Big Corpo, no?"

Sorry, can't help you with that obsession...

If a new employee subsequently turns out to be a dud, HR will get blamed (possibly the line manager as well). If a potentially good employee is blocked by HR (and there is always *some* excuse available), the line manager's life is difficult for as long as the position remains open, but HR is in the clear.

All that is required is a company big enough to have a separate HR function. Unless, of course, that's your definition of 'Big Corpo'.

"If a new employee subsequently turns out to be a dud, HR will get blamed (possibly the line manager as well)"....hiring should be the responsibility of the line manager: HR is there to advise and support. The only exceptions might be intensive production operations when a shop-floor supervisor can't spare the time for interviews, but, even there, it's a bad idea.

David: Duh! But it's remarkable how many corporations have HR drones with no effing idea of what kind of employee is actually needed filtering everything - at least when official procedures are followed. Do some research on companies you want to get into, and find out what managers are likely to be hiring for a job you could fill. Find someone you know who knows the hiring manager and will pass your resume to him or her without involving HR. Just sending your resume to the hiring manager directly is risky but occasionally effective - maybe he'll be glad to see it, maybe he tosses 100 a week into the circular file.

It's the resposibility of the hiring manager to tell HR what kind of filtering he wants or doesn't want. I've personally never encountered an HR person who insisted--or even tried to insist--on doing filtering that I didn't want him to do.

Most scientific and engineering advances are built upon a mountain of failures.

ex. Of the first batch of railroad bridges built in the mid-1800 when the railroads were being developed, about 1/3 collapsed during use, often with fatal results. Then...people figured out how to build bridges that would sustain heavy loads.

Failure is the life-blood of advancment.

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