Monday, May 10, 2010

Conventional Wisdom and the Knowledge Problem

A friend sent me an email with photos of a horrible crash "caused" by texting/cell phone use.  You know the drill - a virtual finger wagging designed to intimidate or shock reprobates like me that continue to telephone while driving.  But is their finger wagging justified?  I decided to run some numbers and see.  Now what I've done is only rough and directional but my reasoning was as follows:  We've had massive increases in cellphone usage and texting so much so that it is commonplace to see people using their mobile device while driving.  So, if phoning and texting while driving is such a 'clear and present danger' its impact should show up in increased mayhem on our highways.  So I got the Natinal Highway Traffic Safety Administrations's data series on fatalities per 100 million miles driven and this is what it said:

Source:  NHTSA
Compare this gently declining line to the number of cell phone subscribers in the US.  Measuring subscribers probably understates growth in usage because minutes are rising faster than subscribers as people shift from landlines to mobile devices.  Nevertheless, we've seen at least a sixfold increase in cell phone usage at the same time as steadily declining traffic fatalities per mile driven.  Hmmm.

Source:  Census Bureau
But where the rubber meets the road so to speak is with texting:  it's all those darn kids texting while they drive that creates these outrageous risks.  So here are the texting trends:

Source:  Census Bureau
Double hmmm.  Since 1996 texting has gone from nothing to almost 120 billion messages in 2008.  Cell phone subscriptions have grown six-fold  yet highway fatalities are down 28% per mile driven in a period of time where speed limits increased from 55 to  65, 70, 75, even 80 MPH.  And the steepest declines in death rates have occurred in the last two years when texting added a net 100 billion messages a year.  (Oh, and these trends occurred before most if not all of the highly publicized 'bans').

So what's going on?  Well the simple answer is that people and societies just aren't that simple.  There was probably some improvement in car and roadway safety going on during this time and our population got slightly older and more affluent.  But neither of these trends are sufficient to overcome the horrific carnage that the finger waggers were telling us was happening every day because of cell phones and texting.   My theory is that people are intelligent and adaptive creatures - they know full well that their phone behavior impairs their driving attention and adapt their driving habits accordingly.  But I could be wrong.  Nobody who's honest with themselves really knows.

So why did I come up with such a different conclusion than the waggers?   First, I tested the overall claim of "cellphones increase traffic danger" against the macro data - a trend that demands laws and moral judgment should pretty dang easy to see in the data, shouldn't it?  And if it can't be detected then what's the big deal?  and Second, I didn't presume that I had "the" answer as to what the explanation was or even that there was an answer.  Things are complex, people adapt, we don't completely understand how human societies work - if we did we wouldn't have panics, wars and riots.

This is an important consideration when someone comes to you saying that they have "the" answer to a market opportunity or institutional challenge.  The odds are that they don't.  They may have a handle on a piece of the answer but it is highly unlikely that they understand how the solution will play out in a market filled with countless independent actors making their independent value judgements and responses.  Friedrich Hayek won a Nobel Prize for articulating this "knowledge" problem.  And it's a problem that bedevils anyone bringing a new solution or policy to market.  The more frame breaking the concept, the more creative the solution, the bigger an issue this is.  We just don't know what's going to happen.

This doesn't mean that new solutions are illegitimate or that innovation should be rejected, it simply means that the outcome of innovation or change is seldom predictable.  This rewards organizations and people who are good at sensing market needs, experimenting with new concepts and adapting to changing circumstances.  Indeed, it rewards those institutions organized around markets because markets incorporate everyone's perspective, everyone's knowledge.  Oh, and by the way:  the faster a market changes the bigger the advantage that innovators have because they are driving change rather than reacting to it.

So the next time someone comes to you with 'THE' answer, tell them that it's more complicated than that.  Out on the Openwater.

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