Living With Mistakes
Some of the blogs I follow—Marginal Revolution, Ezra Klein—have given ample attention to Tim Harford’s new book, “Adapt: Why Success Always Starts with Failure.” So I solipsistically assumed that everybody must be aware of it. But then I happened to glance at this book’s Amazon ranking, which as I write is down on the wrong side of 1,500. This is an outrage, people! For the good of the world, a bigger slice of humanity should be aware of its contents.
So I’m doing my bit to publicize it. (I don’t know Harford in any way, shape or form.)
Harford starts out with the premise that the world is a very complicated and difficult place. At the dawn of the automobile industry roughly 2,000 car companies sprang into being. Less than 1 percent of them survived. Even if you make it to the top, it is very hard to stay there. The historian Leslie Hannah identified the ten largest American companies in 1912. None of those companies ranked in the top 100 companies by 1990.
Harford’s basic lesson is you have to design your life to make effective use of failures. You have to design systems of trial and error, or to use a natural word, evolution. Most successful enterprises are built through a process of groping and adaptation, not planning.
The Russian thinker Peter Palchinsky understood the basic structure of smart change. First seek out new ideas and new things. Next, try new things on a scale small enough so that their failure is survivable. Then find a feedback mechanism so you can tell which new thing is failing and which is succeeding.
That’s the model—variation, survivability, selection.
Harford then illustrates how this basic process can work across a variety of contexts, from business to war to poetry. He’s an able guide to the world of human fallibility. For example, he cites James Reason who identifies three kinds of error. First, there are slips. In 2005 a young Japanese trader meant to sell one share of stock at 600,000 yen but accidentally sold 600,000 shares at 1 yen.
Then there are violations, when someone intentionally breaks the rules. This is what Bernie Madoff did. Then there are mistakes—things you do on purpose but with unintentional consequences.
Errors can be very hard for outsiders to detect. A study by Alexander Dyck, Adair Morse and Luigi Zingales looked at 216 allegations of corporate fraud. Regulators and auditors uncovered the fraud in only one out of six of those cases. It was people inside the companies who were most likely to report fraud, because they have local knowledge. And yet 80 percent of these whistleblowers regret having reported the crimes because of the negative consequences they suffered. This is not the way to treat people who detect error.
Harford is an economic journalist, so he doesn’t get into the psychological and spiritual traits you need to live with error and look it in the face, but he offers a very useful guide for people preparing to live in the world as it really is.