Follow The Science? Business Decisions And Technical Advice10 March, 2022 / Articles
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Nobody knows everything, so many business decisions rely on expert opinions. Executives listen to scientists, lawyers, accountants, engineers and many other specialists. How skeptical should decision-makers be about expert advice?
The Covid-19 pandemic has raised many questions about “follow the science” and scientific skepticism. Scott Sumner, for example, recently categorized people based on their skepticism of science. An important distinction that arises from the pandemic debate, which is widely applicable to business, addresses whether the science or other expert opinion is strictly about the science or extended to other areas.
The 2020 lockdowns illustrate the challenges of “following the science” within a narrow specialty. Covid-19 is a dangerous and highly infectious disease, so isolation makes sense as a policy response—when considered by itself. But what about the rest of the science, which says that social isolation is bad for health and that delaying routine health screenings and treatments can lead to more deaths? Tthe total number of deaths in the past two years far exceeds our estimates of Covid-19 deaths, with increased deaths related to heart disease and Alzheimers among others. The cancers being found during the pandemic are, on average, more advanced than cancers found before the pandemic. Following the science would have required much broader studies that extended well beyond the single virus.
A business example of the need for broad views might be an engineering opinion that a new manufacturing process will result in more defective products. Some engineers may find this sufficient cause for management to reject the process. However, that approach attempts to extend the expert opinion beyond the range of its validity. Suppose that the business manager knows that defective parts can be identified easily, and that production costs will be lower even after subtracting the defective parts. A narrow “follow the science” approach rejects the new process, but the broader analysis—extending beyond engineering expertise—may lead to a different and better conclusion.
Scientific advice for health issues sometimes imposes the scientists’ value of risk versus reward, which is not actually part of science. Smoking tobacco is clearly hazardous to health—that’s the science—but smokers get some pleasure from their cigarettes. Science can identify how much risk the smokers are taking, but nobody can judge for another human being how much risk is acceptable for a sense of pleasure.
In the business world, an expert may opine that a certain action is risky. For example, a corporate attorney might advise the CEO that a particular tweet risks an enforcement action by the Securities and Exchange Commission. However, the attorney is not the judge of how much risk a company should take; that’s a management decision.
Science skepticism may arise from people familiar with how scientific beliefs have changed over time. Science is actually a process of knowledge discovery rather than a set of conclusions. And the current conclusions may not be accurate. For example, Manhattan Project physicist Alvin Graves was disdainful of radiation’s dangers. For many years medical doctors denied that infections caused stomach ulcers. The list could go on and on.
The non-expert has little hope of identifying which current beliefs, whether in science, engineering, accounting or other fields, will eventually be overturned. However, the non-expert can get an idea of how reliable are the opinions being heard. The business leader might ask the expert, “Is your opinion mainstream, or are their experts in your field who would disagree with you?” This is actually information that an expert should volunteer. In a recent article about inflation, I offered my own forecast and then wrote, “This view of the inflation forecast is gloomier than most other economists are predicting.” Business leaders were alerted that they were reading an opinion outside the mainstream.
Decision-makers can also ask the expert how sure other experts are about the conclusion. “If I asked ten other accountants this question, would they all agree on what GAAP requires?” The range of opinions also offers insight into the certainty of the profession. When epidemiologists differ greatly in their predictions, that tells the rest of us not to take the numbers too seriously. Such a conclusion is not an insult to epidemiologists, but rather an understanding of the difficulty of the task they have undertaken.
For numerical estimates and forecasts, looking at the range of forecasts helps to understand underlying uncertainty. The Federal Reserve in June 2020—right after the most extreme lockdowns—survey the 17 members of the Federal Reserve Board and presidents of the regional Federal Reserve banks. Regarding GDP growth in 2021, the highest prediction was 7.0% and the lowest was -1.0%. Six months earlier the group’s range of forecast ran from 1.7% to 2.2%. Truly we understood less about the economy in mid-2020 than we thought we had in late 2019.
We all rely on expert opinions, but only within the area of the expert’s knowledge. We should consider for ourselves how much risk we wish to take and how we want to deal with uncertainty. Listening to experts is a valuable element in the decision-making process, but in the end, we each must make our own decisions.