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Tree vs human. Photo by Gilly Stewart on Unsplash.

Milton Friedman and the surprising rationality of trees

In one of the most famous essays of 20th century economics, one of its most famous protagonists offers an astounding hypothesis on tree growth, just to dismiss it out of hand. Indeed, the dismissal is understood to be mutual between author and reader, as it sets up the author’s intellectual tour de force.

Even if the premise is wrong, the conclusion can still be correct as long as it is congruent with the empirical findings. There is no such thing as a false assumption, even if it is as outlandish as positing that trees are rational actors. There are only empirical discrepancies between…

Decentralization, accountability, and shared sources of truth.

In 1991, social scientist and Nobel laureate Herbert Simon invited us to participate in a somewhat alien-sounding thought experiment. Imagine an extraterrestrial observing human behavior with a special telescope. Instead of showing us as we are, the telescope allows the observe to recognize social structures: organizations appear as green blobs, interactions between organizations as a network of red lines between the blobs.

This article also appeared in Comatch Insights.

Herb Simon used this thought experiment to raise one fundamental question about human nature: No matter which society we live in, capitalist market economy or socialist planned economy, we like to conduct the vast majority of our economic interactions inside those green blobs…

An IBM 650 in the basement of the business school — a history of computing and economics at Carnegie GSIA

In 1956, the fledgling Graduate School of Industrial Administration (GSIA) at Carnegie Institute of Technology received an IBM 650 computer to use jointly with the engineering and the mathematics departments. In the coming years, this acquisition led to a number of research activities which not only produced multiple economics Nobel Prizes and Turing Awards, but also two very distinct, somewhat incompatible economic frameworks: bounded rationality and rational expectations.

Pittsburgh, the Iron City. Photo by Library of Congress.

Centered on the multifaceted interests of Herbert Simon, the research agenda of the GSIA faculty has been frequently described as “interdisciplinary”, but the focus of most of these efforts were on opening the black box of the firm and describing both its technical processes as a production function and its…

On pathfinding

One of the intriguing aspects of venture building is the contrast between two very different types of engagement: the creation of new potential opportunities and the cutting off of those opportunities that, after some probing, don’t appear viable.

The two steps of venture building

These two types require two very different modes of work. In operations research they are known as “branch and bound”. Within an established company, “research” and “development” are typically two separate organizations within overall product R&D.

The reason for this is simple: the skill set for doing creative work, and…

Will architecture learn to dance? The future of commercial real estate.

I was recently asked what was the most obvious long-term effect of the “whiplash of 2020”. My answer was that every social change we’d usually expect to unfold within twenty years would suddenly only take five.

In the famous technology adoption curve proposed by Geoffrey Moore, new ideas often linger…

Mutuality, decentralization, and credit, 150 years ago.

The dream to revolutionize finance via the disintermediation of big banks and banking the unbanked might be in the news today thanks to the ups and downs of cryptocurrencies and the lingering effects of the financial crisis of 2007. But the very ideas that drive our rethinking the basic concepts of credit, trust, and governance are far from new.

Just like the current discussion is driven by the accelerating pace of the information age replacing the industrial age, the mid 19th century financial innovations were the result of increasing industrialization colliding against the last vestiges of a rural, feudal society. In its midst were a group of social reformers.

Hotbeds of banking innovation. Photo by Angel Barnes on Unsplash

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Every successful internet-era Silicon Valley business model can be traced back to a model from game theory.

Lloyd Shapley wrote his paper on matching markets (with David Gale) in 1962. He received the Nobel Prize in 2005, the year Tinder came on the market.

William Vickrey wrote his first paper on auction theory in 1961, for which he won the Nobel Prize in 1996. Google (and Yahoo!) started implementing Vickrey auctions for ad markets around 2002.

George Akerlof finally got his Lemons Markets paper published in 1970. He won the Nobel in 2001, along…

Office plants, IoT, and the future of work

The much derided devil’s ivy (epipremnum aureum) is probably not at the forefront of the public discussion about the future of work, but we might as well give the inauspicious pot plant a second look if we want to rethink the way we to work together in the future.

Growth matters. Photo by Tom Ezzatkhah on Unsplash

When you think of office plants, you probably think of the succulents your colleagues keep on their desks or the hardy perennials kept alive by the maintenance staff.

You probably don’t think of wellbeing, Internet of Things, or even how plants can become a decisive factor in the future organization…

Accounting for event sequence: the 1|1|1 rule and the backdating exercise

The backdating exercise is a simple way to correct new cases curves for the sequence of events they reflect: a ”case” is typically the report of a diagnostic test indicating the patient is infected. But the epidemiologically important event is the contagion event: the moment the patient contracted the virus, which is normally unobserved. To find out when the contagion event happened we have to backdate from the reported test to the contagion event. The 1|1|1 rule and the backdating exercise give us a quick way to do this.

This is dedicated to Todd LaPorte who taught me everything about zero-tolerance environments.

In a dynamic environment, we are watching echoes of past events, and it is important to shift these events back in time to avoid oversteering after the fact. Belated oversteering is the #2 reason why dynamic systems…

Covid-19: the Ports, Roads, Industry hypothesis

The Ports, Roads, Industry hypothesis compiles evidence that there are three discernible characteristics of the spread pattern of Covid-19: port , overland truck routes, and “3rd tier” industrial clusters outside of the big city centers.

Covid-19 is a supply chain disease.

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The hypothesis expressed in a bit more detail:

Covid-19 is concentrated in a mid population density, high small-industry, high particulate matter count, temperate environment.

Ports of entry (seaports, airports, border crossings) are also pronounced patterns.