Decisions made at the edge

April 19, 2019

"We try not to create a rule every time there is a problem," Elon Musk, the founder of Tesla, once said. "The rule is worse than the problem."

It's unclear whether a life based on Elon theorems would turn out well. But there is much to be learned from this aphorism.

Don't tell my kids this, but the problem with rules is that they impede information flow and democratic decision making. When a rule exists, someone else has made a choice for the "actor." In almost all cases, that someone else has less information, and less at stake. Because so many variables go into a decision, in some form, the result will be sub-optimal.

Sometimes this tradeoff works. Rules in one context are referred to as laws, and there are plenty of laws that underpin a modern, stable society. But this can go too far. As World War Two wrapped up, Friedrich Hayek, the Austrian economist, wrote an article titled "The Use of Knowledge in Society," in which he argued that information is decentralized, and optimal choices are made by those with the information.

If you've ever been frustrated by bureaucracy at work, you know the feeling.

This is one of the reasons societies based on families have worked for millennia. In a family unit, people can make choices that suit them. The average family makes many improper decisions - they are far from perfect. My own neighbor once said he likes to walk by my house on summer evenings because there is so much noise, and chaos, that emanates from the front windows that it makes him feel better about his own life. The point is that this system of stumbling forward easily surpasses the alternatives.

Hayek's work on information dispersion inspired Jimmy Wales to start Wikipedia. In its early days, people assumed it was a joke - that it was riddled with errors. It did have some mistakes, but the cost of that error was offset by its value in becoming a free, worldwide, generally accurate store of knowledge. Thousands of editors cross-check the information in close to real time and remove inaccuracies; an ecosystem and culture of democratic editing sits behind the site. Because of its open participation and broad reach, it's the most democratic "university" that has ever existed.

Quite the contrary, I had to deal with the Vermont legislature this year for a non-work issue. On the one hand it has characteristics of knowledge dispersion, in that almost any citizen in Vermont has access to the statehouse. But one of the things I noticed in the process was the only testimony that the politicians were citing, and taking seriously, was that based on the witness's title. And there was an inversion in quality - the better work, and clearer thought process, was delivered from citizens who were living with the problem but had no title. The legislators were taking signal from the structure of the hierarchy, not the quality of the work. If I had been in their shoes, I would have *assumed* the hierarchy was the weaker source of accurate information.

I encourage you to read "The Use of Knowledge in Society." It is a great academic work in that you can see its application in so many parts of life.

Dan Cunningham

Review of The Use of Knowledge in Society
Actual article: The Use of Knowledge in Society