Knowledge And Decisions

Many people are uneasy with the thought of making decisions on the basis of merely probabilistic indications like franchise names, and especially with the idea of sorting and labeling people by one or a few characteristics. The only reason for doing so in either case is the cost of alternative procedures, with finer categories, which might produce incrementally more accurate predictions. Yet the large number of people murdered by spouses each year suggests that even the most intimate knowledge of other people will not produce certainty as to their future behavior. The only question is — how much more knowledge (risk reduction) is worth how much more cost? Obviously this varies with the decision. No one wants to select a spouse on the basis of crude rules of thumb, but then neither does anyone want to put the same amount of thought into selecting a television program that he or she puts into selecting a mate. The argument here is not in favor of crude decision-making processes. The argument is simply that the fineness of the sorting and labeling process is incrementally variable with respect to both costs and benefits, so that it must stop somewhere short of the quality of decision-making that is possible, and so must — and should — make “avoidable” mistakes.

Looked at another way, “avoidable” mistakes are not necessarily a condemnation of a decision-making process — if alternative processes which would have avoided these particular mistakes in these instances would also have cost so much in so many other instances (either in money or in other mistakes) as to outweigh the costs of the “avoidable” mistakes. Decision-making processes are often judged by standards which ignore this simple fact. This is done not only by naive people but even by experts. For example, an experienced traveler who has been through a given area many times may be able to select local hotels, restaurants, and auto rental agencies much more advantageously than by relying on franchise names, and may be able to factually demonstrate the superiority of his choices to the other choices which he disdains. Yet if his disdain extends to the method of choice (franchise names in this case) he is very mistaken. Experts who loftily dismiss the public’s method of choice in many areas often fail to consider the cost of knowledge. By definition, the expert has already paid these costs in the past, and the incremental cost to him of making individual choices after that is virtually zero. Nothing is easier for an expert than to show instances where things, activities, and people were misjudged. What is misleading is to imply that therefore wrong methods of sorting and labeling were used.

PEOPLE

There is a fatal charm about the idea of “judging each person as an individual.” Our sympathies immediately go out to the person who has been “wrongly” denied a job, credit, college admission, or an opportunity to participate in some activity because that person fails to meet certain “arbitrary” requirements, but demonstrably should have been acceptable because of other considerations. An onlooker may find it silly that a department store clerk will not accept a personal check from a Rockefeller but will accept a credit card from an unemployed laborer. But the real question is whether credit policies shall be made by specialists higher up in the organization and passed down as rules restricting the discretion of lower level employees, or whether the financial future of the organization shall be put in the hands of store clerks and rest on their personal assessments of customer credit worthiness.