the cursed credibility curve
an example of feedback with a lag
a somewhat shorter and lighter post for Friday I think … I always used to draw this curve when I was a stock analyst, to explain one of the more frustrating aspects of that profession; the seemingly perverse and capricious choices made by the sales desk as to which ideas they would push to the client base. I didn’t know at the time that I was illustrating a known problem of control theory, which also fascinated Norbert Wiener.
Basically, as everyone involved in the stock-picking industry knows, you have hot and cold streaks. Sometimes you’re really in tune with the market, sometimes you’re not. And good ideas don’t last - the way they demonstrate their goodness is by going up and consequently having no more upside in them. So, over time the profitability of your ideas fluctuates:
Your colleagues on the sales desk want to get behind good ideas, but the only way a good idea can be identified is ex post, by which time it isn’t good any more. So they pay attention to the analysts who have recently had hits, on the basis that good ideas come from good analysts:
As you can see, the lag in performance measurement accounts for the fact that your very best ideas will languish, then the whole sales desk will really get together and market you just when you’re about to fall on your face.
I discussed this once with a more than usually intelligent sales guy, who thought about it and responded that a similar phenomenon probably accounts for the fact that the last series of most TV shows invariably sucks.
"more than usually intelligent sales guy" - the fact that some of the bozos I've worked with (fellow ex-equity researcher here) got very very wealthy doing equity sales never fails to astonish/dismay
About 50% through The Unaccountability Machine (with a detour to read Eden Medina's Cybernetic Revolutionaries--great rec). Your book does a very impressive job breaking down the concepts for those of us who don't spend a lot of time thinking about management systems and economics, and is helping me think about how the 1970's and later turn to deregulated markets with Reagan and Thatcher connects up with the shrinking of political possibility that is encapsulated by the 1973 Chile coup. What was it that made the Cold Warriors decide to fight their battle for capitalism and the market rather than for democracy, which would objectively seem a more important and attractive cause, and get to the point of seeing democracy as a threat if it didn't conform to their economic ideas? The chapters explaining what economic modeling shows and what it leaves out, and how a mental leap was made from the market being the most efficient and effective way to convey economic information to a dogmatic idea of the market being always *right* in its societal impacts, illuminated some of how this happened ideologically for me.
In a way, free market ideology has served as an accountability sink for political policymakers, or at least something they can blame for the decisions they aren't making. A limit there is that dissatisfied people can't yell at abstract economic ideas the way they can at a customer service rep... Have looked ahead a bit and the points you make about current right-wing "populism" as a distress signal rather than a fix make a lot of sense.