Don't trust the knowalls

The examples below are from business but in politics it is always the Left who think they have all the answers -- with results as bad as knowalls in business. Even "experts" are often wrong and Leftists tend to be profoundly ignorant of most of the things they discuss -- such as economics

IN DECEMBER 2008, two seemingly unrelated events occurred. The first was the release of Stephen Greenspan’s book, Annals of Gullibility: Why We Get Duped and How to Avoid It. Greenspan, a professor of psychology, explained why we allow other people to take advantage of us and discussed gullibility in fields including finance, academia, and the law. He ended the book with helpful advice on becoming less gullible.

The second was the exposure of the greatest Ponzi scheme in history, run by Bernard Madoff, which cost its unsuspecting investors in excess of $60 billion. A Ponzi scheme is a fraudulent operation in which a manager uses funds from new investors to pay off old investors. Since there is no legitimate investment activity, it collapses when the operator can’t find enough additional investors. Madoff’s scheme unraveled when he couldn’t meet requests for redemptions from the investors stung by the financial meltdown.

The irony is that Greenspan, who is bright and well regarded, lost 30 percent of his retirement savings in Madoff’s Ponzi scheme. The guy who wrote the book on gullibility got taken by one of the greatest scammers of all time. In fairness, Greenspan didn’t know Madoff. He invested in a fund that turned the money over to the scheme. And Greenspan has been gracious in sharing his story and explaining why he was drawn to investment returns that looked, in retrospect, too good to be true.

If you ask people to offer adjectives they associate with good decision makers, words like “intelligent” and “smart” are generally at the top of the list. But history contains plenty of examples of intelligent people who made poor decisions, with horrific consequences, as the result of cognitive mistakes.

Odds of success are poor, but not for me

Corporate mergers and acquisitions (M&A) are a multitrillion dollar global business year in and year out. Corporations spend vast sums identifying, acquiring, and integrating companies in order gain a strategic edge. There is little doubt that companies make deals with the best of intentions. The problem is that most deals don’t create value for the shareholders of the acquiring company (shareholders of the companies that are bought do fine, on average). In fact, researchers estimate that when one company buys another, the acquiring company’s stock goes down roughly two-thirds of the time. Given that most managers have an explicit objective of increasing value-and that their compensation is often tied to the stock price-the vigor of the M&A market appears moderately surprising. The explanation is that while most executives recognize that the overall M&A record is not good, they believe that they can beat the odds.

“A high-quality beachfront property” is how the chief executive officer of Dow Chemical described Rohm and Haas after Dow agreed to acquire the company in July 2008. Dow was undaunted by the bidding war, which had driven the price premium it had to pay to a steep 74 percent. Instead, the CEO declared the deal “a decisive step towards establishing Dow as an earnings-growth company.” The enthusiasm of Dow’s management had all the hallmarks of the inside view. When the deal was announced, the stock price of Dow Chemical slumped 4 percent, putting the deal on top of a growing pile of losses suffered through acquisitions.

Basic math explains why most companies don’t add value when they acquire another firm. The change in value for the buyer equals the difference between the increase in cash flow from combining the two companies (synergies) and the amount over the market value that the acquirer pays (premium). Companies want to get more than they pay for. So if synergies exceed the premium, the price of the buyer’s stock will rise. If not, it will fall. In this case, the value of the synergy-based on Dow’s own figures-was less than the premium it paid, justifying a drop in price. Glowing rhetoric aside, the numbers were not good for the shareholders of Dow Chemical.

What’s in it for me?

Incentives matter, as economists have argued quite compellingly. An incentive is any factor, financial or otherwise, that encourages a particular decision or action. In many situations, incentives create a conflict of interest that compromises a person’s ability to properly consider alternatives. So when you evaluate your own decisions or the decisions of others, consider the choices that the incentives encourage.

Dr. Katrina Firlik, a neurosurgeon, shared an example: at conference dealing with spine surgery, a surgeon presented the case of a female patient with a herniated disc in her neck and pain that was caused by a pinched nerve. She had already failed typical conservative treatments such as physical therapy, medication, and waiting it out.

The surgeon asked the audience to vote on a couple of choices for surgery. The first was the newer anterior approach, where the surgeon removes the entire disc, replaces it with a bone plug, aim fuses the discs. The vast majority of the hands shot up. The second choice was the older posterior approach, where the surgeon removes only the portion of the disc that is compressing the nerve. No fusion is required because the procedure leaves most of the disc intact. Only a few audience members raised their hands.

The speaker then asked the audience, which was almost entirely male, “What if this patient is your wife?” The show of hands was reversed for the same two choices. The main reason is that the amount surgeons are paid for the newer and more complicated procedure is typically several times what they’d receive for the older procedure.

The expert squeeze

Accurately projecting holiday sales is a crucial task for retailers. A forecast that is too low leaves shelves bare and profits lost, while too much optimism leads to dusty inventory and pressure on profit margins. So retailers have a great incentive to come up with a precise sales estimate. To do so, most merchants rely on experts—individuals in the organization who gather information, study trends, and make predictions.

The stakes are especially high for consumer electronics firms because they generate so much of their revenue during the gift-giving season and the value of their inventory depreciates rapidly. The pressure is really on the internal experts at consumer electronics giant Best Buy, one of a multitude of retailers that rely on specialists. So you can imagine the reaction when James Surowiecki, author of the best-selling book, The Wisdom of Crowds, strolled into Best Buy’s headquarters and delivered a startling message: a relatively uninformed crowd could predict better than the firm’s best seers.

Surowiecki’s message resonated with Jeff Severts, an executive then running Best Buy’s gift-card business. Severts wondered whether the idea would really work in a corporate setting, so he gave a few hundred people in the organization some basic background information and asked them to forecast February 2005 gift-card sales. When he tallied the results in March, the average of the nearly two hundred respondents was 99.5 percent accurate. His team’s official forecast was off by five percentage points. The crowd was better, but was it a fluke?

Later that year, Severts set up a central location for employees to submit and update their estimates of sales from Thanksgiving through year-end. More than three hundred employees participated, and Severts kept track of the crowd’s collective guess. When the dust settled in early 2006, he revealed that the official August forecast of the internal experts was 93 percent accurate, while the presumed amateur crowd was off by only one-tenth of 1 percent.

Best Buy subsequently allocated additional resources to its prediction market, called TagTrade. The market has yielded useful insights for managers through the more than two thousand employees who have made tens of thousands of trades on topics ranging from customer satisfaction scores to store openings to movie sales. For instance, in early 2008, TagTrade indicated that sales of a new service package for laptops would be disappointing when compared with the formal forecast. When early results confirmed the prediction, the company pulled the offering and relaunched it in the fall. While far from flawless, the prediction market has been more accurate than the experts a majority of the time and has provided management with information it would not have had otherwise.

More HERE

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Israel in Haiti

Israel’s relief efforts to Haiti include the following:

* A field hospital, the only hospital in operation, with 40 doctors, 25 nurses, paramedics, a pharmacy, a children's ward, a radiology department, an intensive care unit, an emergency room, two operating rooms, a surgical department, an internal department and a maternity ward. The hospital can treat approximately 500 patients each day, and in addition will perform preliminary surgeries.

* A search-and-rescue team, which has rescued about five people from under the rubble.

* 220 personnel in total

* Dozens of truckloads of medical and logistical equipment

Saudi Arabia, on the other hand, one of the richest countries in the world, has sent a message of condolence to Haitian President René Préval. Some Arab countries have “pledged” help, such as $1 million pledged from both Kuwait and Morocco, and the United Arab Emirates says it will “shortly” send a plane with humanitarian assistance. Qatar, with the third largest gas reserves and the second highest GDP per capita in the world, has dispatched 50 metric tons of aid to the hundreds of thousands of homeless and injured Haitians.

Latest reports are that the IDF Medical Corps have treated some 200 injured people in Haiti, performed ten life-saving surgeries and saved the lives of 140 others. On Sunday night, a resident of Port-au-Prince gave birth to a boy at the Israeli field hospital. In appreciation and gratitude, his mother decided to name her new son “Israel” in honor of the country that helped her.

The director of the Haiti field hospital, Col. Dr. Itzik Reis, explained that the IDF delegation is also giving assistance "to people from emergency crews from all over the world, who simply are not capable of dealing with everyone who needs help and giving them treatment. For example, when we understood that the Dominican team is not set up to provide full treatment, we created an order by which they stabilize the patients and we give them the remainder of the treatment.”

Other Israeli relief operations in Haiti include:

* A six-man ZAKA rescue unit, which worked for 38 consecutive hours and succeeded in pulling eight students alive from the rubble of the collapsed university.

* IsraAID, which sent a planeload of food and medical equipment.

* "Latet" (To Give) – a 15-member mission to Haiti, including three physicians, three nurses, and three paramedics.

SOURCE (Videos here)

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ELSEWHERE

A Word of Caution: "Like so many others, I am praying for a Scott Brown victory and am incredibly heartened by the many accounts of support for him from unexpected sources. But I think it's important to remember that this is a blue state with a very powerful, well-oiled machine. The Democrats, from President Obama on down, are aware of what a Brown victory means for them and their agenda, and they are going to be willing to do (almost) anything to defeat him. And experts I trust (like Dan Schnur) remain actually somewhat pessimistic about the possibility of Brown pulling off an upset. Really, it's far from impossible that Coakley's people could find every stray Democrat vote around and drag their voters to the polls. Democratic partisans like Ed Schultz have admitted they'd be willing to cheat in order to keep the seat in Democrat hands (nice guy for the Dems to try to recruit themselves for the Senate, isn't he?). It's far from over. But there's solid reason for hope, and as Hugh Hewitt once put it in the title of a book, "If It's Not Close, They Can't Cheat."

Communities put a halt to red-light cameras: "Red-light cameras that have been gaining a foothold in many states face a growing public backlash and outright removal. The cameras, billed as safety devices since their introduction in the USA nearly 20 years ago, are increasingly viewed by many motorists as unreasoning revenue generators for hard-up local governments.”

TX: Protesters converge on new Planned Parenthood center: "Thousands of demonstrators gathered in southeast Houston today to protest the opening of a new Planned Parenthood clinic. The building is located on the Gulf Freeway near the University of Houston. Protestors are calling it an ‘abortion super center.’”

TN: Chattanooga hospital ends hiring of tobacco users: "Officials at a Chattanooga hospital have decide to stop hiring tobacco users. Memorial Hospital Vice President Brad Pope told the Chattanooga Times Free Press the decision is an extension of the hospital’s commitment to health and is not based on potential healthcare cost savings. Any form of nicotine will make an applicant ineligible to be hired — even nicotine gum or a patch. The new hiring rule will not affect current employees of Memorial. Information posted on the hospital’s Web site states testing for nicotine will be added to an already-required screening for illegal drugs and will disqualify applicants who test positive.”

1989 San Francisco earthquake: "From the Marina District I could see the smoke from the fires that had broken out. The fire department simply couldn’t respond that day. All the official reports I read later spoke of the hundreds of citizens who started battling fires before any official help arrived. Throughout the city, the reports later showed, individuals, untrained in rescue work, climbed into buildings and brought out the wounded or helped those just too shaken up to know what to do. The police, who apparently had time to roust gay men from the bars in the Castro, said they were spread too thinly to help the public very much. That help came from the people of the city, not from those who rule them.”

The new paternalism: "We’ve all heard about this new paternalism, haven’t we? You know, Cass Sunstein and ‘Nudge’ seems to have got David Cameron all excited, there are even those calling the whole idea libertarian paternalism. We. the populace, are such confused little baa lambs that we need the wise and the good to tell us what to do. But instead of actually insisting we do something we’ll just get a few nudges from taxation or regulation to get us through the right five bar gate. You know the sort of thing, maybe the collie dog will bark at us, perhaps even nip our heels, but we won’t be forcibly beaten into our pens.”

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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)

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