Developing Decision-Making Skills For Business Julian L. Simon M.E. Sharpe Armonk, New York London, England Copyright © 2000 by M. E. Sharpe, Inc. All rights reserved. No part of this book may be reproduced in any form without written permission from the publisher, M. E. Sharpe, Inc., 80 Business Park Drive, Armonk, New York 10504. Library of Congress Cataloging-in-Publication Data Simon, Julian Lincoln, 1932– Developing decision-making skills for business / Julian L. Simon. p. cm. Includes bibliographical references and index. ISBN 0-7656-0676-3 (alk. paper) 1. Decision-making. 2. Corporate culture. 3. Psychology, Industrial. I. Title. HD30.23 .S556 2001 158.7—dc21 00-030118 Printed in the United States of America The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences Permanence of Paper for Printed Library Materials, ANSI Z 39.48-1984. ~ BM (c) 10 9 8 7 6 5 4 3 2 1 About the Author Julian L. Simon died on February 8, 1998. He was professor of business administration at the University of Maryland from 1983 until his death. Before that, from 1963 to 1983, he taught at the University of Illinois. He was Visiting Professor in the School of Business at Hebrew University in Jerusalem in 1968, 1970–71, and 1974–75. He was the author of some two hundred articles and thirty books, including The Ultimate Resource, The Economic Consequences of Immigration, The State of Humanity, and How to Start and Operate a Mail- Order Business. Preface Some Personal Reflections on Writing This Book No one could write with authority about all the topics in a book that ranges as widely as this one does. Even to attempt to do so requires chutzpah. Yet I believe the attempt is worth making even if the book is not wholly successful in knitting together these disparate subjects into a common framework and a single volume. In such a venture, new ideas inevitably arise about the kinship (and lack of it) among various kinds of thinking, and about the similarities and differences among them. As Eudora Welty put it about writing fiction: “In writing, as in life, the connections of all sorts of relationships and kinds lie in wait of discovery, and give out their signals to the Geiger counter of the charged imagination, once it is drawn into the right field.” This axiom has made it worthwhile for me, and I hope for you, too. And if someone with a peculiar background like mine doesn’t try, who will? The Author’s Qualifications to Write a Book Like This One Such as they are, these are my qualifications: First and foremost, the book is mainly about “how to,” in both the broad and the narrow senses— such as how to choose the problems a scientific laboratory should study, and how to decide whether to rent or buy a large computer. Many of my early books also have been about “how to”—how to do research in social science, a very broad topic; how to make business decisions, also rather broad; the very specific How to Start and Operate a Mail-order Business; how university libraries can identify and reduce the cost of storing books that are not used frequently, a very technical how-to-do-it; how to do (and teach students to do) all probability and statistics problems by the Monte Carlo “resampling” method; and how to manage advertising. Many of my technical articles also have been “how to”—how to handle airline oversales with a volunteer auction plan (in use since 1978 on all U.S. airlines), how to value a country’s population size, and so on. My viewpoint is practical even when the subject of discussion is very unbusinesslike. This fits with the pragmatic thought of William James, many traces of which can be seen in various chapters. During my younger years, I worked at a variety of down-to-earth jobs such as menial labor in a brewery and a beer can factory; service occupations such as caddying, driving a taxi, selling encyclopedias, stocking at Sears, and clerking in a drugstore; white-collar work such as technical-manual writer; bookkeeper, advertising copywriter, and market researcher; self- employed painter of house numbers, and starting my own mail-order business; lawyering as defense counsel in low-level Navy trials; serving as a deck officer aboard a destroyer and as a gunfire liaison officer with the Marines; business consultant; free-lance columnist. There is something to be learned in each of these jobs, and each of them casts light on the others. It may also be of benefit that my intellectual sympathies embrace a wide range of writers. Although I admire David Hume and Adam Smith for their realistic view of human nature and for the analysis of society that follows from that view, and though I have a corresponding negative view of Karl Marx’s thought about human nature and society, I admire Marx’s muckraker writing about the ills of English industrial life in the nineteenth century. The prose of Genesis, Shakespeare’s rhyming sonnets, and Whitman’s free verse all inspire awe and joy in me; Blake’s poems cast me into despair. I am a Jew by loyalty and I am attached to Judaism, but I honor Jesus, the Buddha, and the Zen masters as teachers and heroes. This catholicity of interest and sympathy, together with my belief that there are ridiculous and funny aspects to almost everything, should help a person write a book like this one. More generally, I must confess the most serious of academic sins—I am an eclectic. (I first heard this sin denounced in an undergraduate course in experimental psychology. The moral immediately struck me with force, but I knew that I was cut out to sin the sin anyway.) I usually find useful truth in apparently opposed views of a subject, and the disparity between different views of the same subject often produces new ideas in me. (One of the pleasures of writing this book has been the exploration of these interpenetrations.) I believe that single- mindedness and intellectual imperialism usually damage scholarship, though they are invaluable in promoting ideas. This fits together with my sense of the universe as an open system made up of open subsystems, even though I recognize that closed-system analysis can often be a useful approximation for analysis. Interchange Among the Social and Decision Sciences For decades there has been talk that the social sciences were in the process of convergence. Yet they seem to have drifted ever farther apart. In the 1990s there have been some encouraging signs, especially in the field of decision-making where psychologists, economists, philosophers, and mathematicians are arguing with each other, and also in the field of organizational behavior where sociologists and economists are finding common ground. The book benefits from these contacts among the social sciences, and I hope that it contributes to this movement of interchange, too, even if the convergence is only for a few brief years. When one looks beneath the surface of many political and intellectual controversies, one often finds that the participants are divided not only by differences in their preferences and beliefs about the “facts,” but also by differences in their modes of thinking. Often the two sides in a dispute have entirely different world views—that is, different ways of thinking about the way that nature and human nature operate. If one can identify these differences, one can sometimes reduce the distance between the contending parties, or at least reduce the intensity of conflict by making clear the underlying nature of the dispute. Perhaps this book can contribute by helping build such intellectual bridges. The History of the Book It is now nearly three decades that I have been planning this work. You will find quotations from newspaper articles dating back to 1970; on the clippings I scribbled “Thinking,” my file name for this book during all these years. During that long period of preparation, I have had the opportunity—and sometimes the necessity—of learning about subjects and ideas that on the surface have no connection to one another. Yet many or even most of those subjects turn out to hinge upon thinking processes, one way or another. My desire to write this book was greatly intensified by experiences over three decades in my main special field, the economics of population. Unsound modes of thinking account for many of the false beliefs that are commonly held about population growth, natural resources, and the environment. A key example is people’s focus only on short-run and local effects rather than upon the long-run and diffuse effects of additional people being born. Another example is the differences in underlying values between those people who would reduce immigration to the United States and those people who would increase it. Please Enjoy It I hope that you will enjoy this book even a little bit as much as I have enjoyed collecting and developing and then writing about the ideas in it. I am grateful that it has been my lot in life to have had this opportunity. Note Julian Simon died on February 8, 1998. With the help of my son Daniel, who is a professor of business at Texas A&M, I have edited this manuscript, and am delighted that M.E. Sharpe has agreed to publish it. Julian considered this a very important book in his rather large arsenal of publications. Overview of Business Psychology The Book’s Purpose This book teaches ways to improve your mind so that you can live better.