Good thinking?

February 23rd, 2010

Yes, the Riley blog is back after its Christmas and New Year break.

Being away gave me the opportunity to do some reading and one book that I enjoyed and strongly recommend was Irrationality by Stuart Sutherland.

My copy is a 2007 edition of this 1992 book by Sutherland, who was Professor of Psychology at Sussex University. He died in 1998.

Essentially the book is about the many errors of thinking to which we humans are prone; in particular he considers the way we form unshakeable opinions or rush into decisions based on a firm misunderstanding of reality. This is critical stuff for anyone who is in business or, indeed, anyone who isn’t.

In his review of the book, Nicholas Lezard wrote in The Guardian:

“The advance of civilisation and the cultivation of the collective mind would be improved if it were this book, rather than the Bible, that were placed in bedside cabinets of hotels throughout the world…There are few books about psychology that can make you laugh out loud; this is one of them. You must buy this book.”

The chapter titles give you a vague idea of where Sutherland takes us: The wrong impression; Obedience; Conformity; In-groups and Out-groups; Organisational folly; and so on.

For me – burdened with a training in auditing – the chapter on risk was particularly engaging though perhaps lacking the humour to be found in other chapters. I’d like to quote one section of this.

After pointing out that it is often difficult to foresee all the possible chains through which a risk could develop, the following is related:

“As a further example of a disaster caused by irrationality at all levels consider the sinking of the car ferry, the Herald of Free Enterprise in calm seas outside Zeebrugge with the loss of 180 lives. The immediate cause was water entering the car decks because the ship sailed with the bow doors open. The following factors contributed to the disaster: 1. Although the captain had asked for an automatic signal on the bridge showing the state of the doors, none had been supplied. 2. The assistant bosun who should have closed the doors was fast asleep. 3. The officer who should have checked that they were closed had been called away on other duties, because of a shortage of crew. 4. The Herald had originally been designed to ply between Dover and Calais: since the ramp at Zeebrugge was lower than that at Calais, the ship had to take on ballast water to lower it sufficiently to load the cars at Zeebrugge. Because the captain had been ordered to save twenty minutes on the crossing, there was no time to pump out the ballast before leaving, so that the ship was unduly low in the water. 5. Because of the time pressure, the Captain left at full speed, thus creating a bow wave which swept into the car decks.

“Two points should be made. First, had any one of these factors been absent, the ship might well not have sunk. Second…..the main responsibility must lie with the managers…”

So this was caused by an extraordinary array of coincidences, but led to an accident that led us all to think – how could something so daft have happened? Well, the book explains.

The chapter ‘The failure of intuition’ points out that intuition is the strange instinct that tells a person he is right, whether he is or not.

If you want to be equipped to take better decisions, read this book.

NewLab legacy?

February 23rd, 2010

Yesterday brought us the news that the UK has just about crawled out of recession – or rather, out of the technical definition of it, although the output of the UK economy in the final quarter of 2009 was the same as it had been in the third quarter of 2005 – so over four years of growth have evaporated.

Growth in the UK usually averages 2.4 per cent annually so we are now over 10 per cent behind where we would have been if the country had achieved no more than average growth over that period.

What is even more concerning is that since 2005 UK government borrowing has doubled.

In yesterday’s Channel 4 News knockabout between Ken Clarke and Peter Mandelson, the NewLab argument was put forward that the government had to keep on spending for now to avoid putting the recovery at risk. Well, it doesn’t appear that all that spending over the past four years has achieved much. Borrowing does have to be repaid, but I suppose that is not a problem once you have been voted out of office.

I can’t help thinking that every recession brings with it a certain amount of pain and borrowing heavily to ameliorate the suffering simply prolongs it. Is a sharp, deep, painful recession that enables us to return to strong growth quickly better than engineering a shallower but longer lasting one? I’d have thought so. Too late now, though.

Planning a robbery in the US? Best check with your accountant first

February 23rd, 2010

OK I have to admit: this may not apply to you.

But in the course of some leisurely reading I found “Publication 525″ from the United States Department of the Treasury: Internal Revenue Service. You can find this here; it’s a pdf file. It explains what is taxable and non-taxable income for US taxpayers to help them with their 2009 returns.

It’s fairly comprehensive. On page 36, for example:

“Stolen property. If you steal property, you must report its fair market value in your income in the year you steal it unless in the same year, you return it to its rightful owner.”

There’s no indication of whether you can claim a deduction for any expenses incurred in the course of your trade (ammunition, perhaps) but then if too much detail of that nature were given, why would you need an accountant?

Oh, fair market value is defined on page 8.

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