Articles

Teams of foxes make the best forecasts, but expert hedgehogs can help

In Superforecasting , by Philip Tetlock and Dan Gardner, a distinction is made between hedgehogs that know one big thing, and foxes that know many little things. Through experimentation, teams of foxes have been shown to make better predictions. Yet governments and businesses still prefer the narrative approach offered by hedgehogs, perhaps with good reason.

Famous quotes may be apocryphal yet illuminating

Even if Keynes’s last words were not regret “at not having drunk enough champagne”, the story tells us something true about the man. Well chosen phrases gain currency not by virtue of their provenance, but because they meet the (accurately quoted) requirements of Alexander Pope: “What oft was thought, but ne’er so well express’d”.

Exercise power without responsibility using committees and rules

The characteristics of organisational failure are timeless. There are striking parallels between FM Cornford’s 1908 satirical guide to university politics and a slightly newer document, which has recently resurfaced: The Simple Sabotage Field Manual, which helped saboteurs in occupied territories to damage organisations.

Look behind the fiscal tree but don’t expect to find any money

There is plenty of tax waste and avoidance — but if eliminating them was painless, it would have happened. However, one need not believe in pots of gold behind the tree to be concerned. Tax is a moral issue, and paying it demonstrates a sense of shared values of importance to economic and social life in the modern state.

UK invites more bank failures by backtracking on executive liability

The Parliamentary Commission on Banking Standards, which reported in 2013, recognised the central significance of executive responsibility for systemic failure in the sector. It proposed a senior managers regime which would hold executives liable for wrongdoing in activities for which they had responsibility even if they had no specific knowledge of the improper conduct. Having accepted this recommendation, the UK government is now backtracking.

Income and corporation tax structures must be reformed to combat avoidance

It is conventional to distinguish legal tax avoidance from illegal tax evasion. But the reality is that there is a spectrum. The line between the two would be clear only if the law were clear, and it is not. To combat avoidance there must be wide-ranging reform.

HBOS report yields three important lessons for all businesses

British regulators have finally published their report into HBOS, the bank formed from the merger of Halifax with Bank of Scotland, more than seven years after its collapse. The 600-odd pages contain much detail on events and personalities. But there are general lessons for all businesses. Avoid the diversifier’s fallacy. Beware the winner’s curse. Fear adverse selection.

Liquidity helps financial market participants, not businesses and households

Finance professionals bemoan a decline in liquidity, blaming the global crisis and the subsequent intensification of regulation. In markets such as corporate bonds, they report almost no liquidity at all. But while the ease of exchanging one asset for another matters to traders, that is not the measure of liquidity that matters to savers.

Is it meaningful to talk about the ownership of companies?

Who owns a company? The answer is that no one does, any more than anyone owns the river Thames, the National Gallery, the streets of London, or the air we breathe. There are many different kinds of claims, contracts and obligations in modern economies, and only occasionally are these well described by the term ownership.

Uncertainty, cost and noise undermine the case for a new runway at Heathrow

The Airports Commission reported in July, with a clear recommendation to build a new runway and terminal at Heathrow. It relied heavily on an elaborate modelling exercise that calculated costs and benefits for the next 50 years. Little weight should be attached to these calculations. And more consideration should be given to the Gatwick proposal.