Showing posts with label Expert Problem. Show all posts
Showing posts with label Expert Problem. Show all posts

Saturday, April 07, 2012

Entrepreneurship: The Gap Between Theories and Practice

Kate Maxewell of the Kauffman Foundation writing at the Growthology blog observes of the chasm between entrepreneurial literatures and entrepreneurs in action (bold emphasis mine)

In my reading of the entrepreneurship literature I have been struck by the large gap between entrepreneurs and people who study entrepreneurship. The group of people who self select into entrepreneurship is almost entirely disjoint from the group of people who self select to study it. Such a gap exists in other fields to greater and lesser degrees. Sociologists, for instance, study phenomenon in which they are clearly participants whereas political scientists are rarely career politicians but are often actors in political systems.

But in the case of entrepreneurship the gap is cause for concern. My sense is that all too often those studying entrepreneurship don’t understand, even through exposure, the messy process of creating a business, nor, due to selection effects, are they naturally inclined to think like an entrepreneur might. At Kauffman, we have had multiple scholars say to us that they’ve found that talking to entrepreneurs is useful in their research.

This should be obvious, but it’s not. The result is research that can lack grounding, perspective and credibility. As a researcher I understand the natural impulse to keep things neatly ordered so as to create elegant papers and clear conclusions. But the fact of entrepreneurship is that it is anything but pretty or neat. More importantly, the research product resulting from such a disconnect can present a distorted view of the entrepreneurial process that may actually hinder our understanding of it. Such ill-informed research can then go on to form the basis of a policy directed at entrepreneurs – without ever having involved or understood them.

Like investing in markets, theories and practice are often detached. Yet many cling to the barnacle of academic mirages that perceives entrepreneurship as rigorous methodological science.

And as I earlier pointed out entrepreneurial traits are not acquired from books or from the academia and don’t require ‘new attitudes’. Instead they emanate from observation, knowledge, the willingness to learn from failure, and most importantly, the desire to undertake activities that profits from risk ventures through servicing or producing for the consumers.

As the great Ludwig von Mises pointed out, (bold emphasis added)

In order to succeed in business a man does not need a degree from a school of business administration. These schools train the subalterns for routine jobs. They certainly do not train entrepreneurs. An entrepreneur cannot be trained. A man becomes an entrepreneur in seizing an opportunity and filling the gap. No special education is required for such a display of keen judgment, foresight, and energy. The most successful businessmen were often uneducated when measured by the scholastic standards of the teaching profession. But they were equal to their social function of adjusting production to the most urgent demand. Because of these merits the consumers chose them for business leadership.

In short, as part of human action entrepreneurship represents more a work of art—which attempts to satisfy the preferences and value scales of consumers—than of science.

Thursday, October 22, 2009

Wall St. Cheat Sheet: Nouriel Roubini Unmasked; Lessons

The following article, from Wall St. Cheat Sheet, scoffs at the track record of high profile economist Nouriel Roubini in making predictions.

According to Wall St. Cheat Sheet:

``In August I wrote an article “Is Nouriel Roubini a False Prophet?” Apparently, some people are so smitten with Roubini they actually ignored all the cited articles and said, “No.” Consequently, I teamed up with a bunch of people around the world on an open source project to continue our mission exposing false prophets and help unwash those well-meaning brains

``The following video is a large collection of evidence proving Roubini has a horrendous record as a prognosticator. If you too know someone who has been listening to the seductive sounds of Roubini’s mantras, send them this helpful deprogramming message:





Normally, such take downs usually won't make my post. However, there are lessons to be gleaned from this critique which necessitates some discussion.

1. The Role of Media. This reveals of the proclivity of media to glamourize personalities who glibly "represent" the Du jour issues regardless of their past performance.

The appearance of fluency, urgency and connectivity to current events translates to more coverage. Ergo, the celebrity status.

2. Expert problem. Nassim Taleb says that "intelligent or informed persons were at no advantage over cabdrivers" in making predictions.

Why? Because of egotistical problem. Again according to Mr. Taleb, ``The problem with experts is that they do not know what they do not know. Lack of knowledge and the delusion about the quality of your knowledge come together-the same process that makes you know less also makes you satisfied." (emphasis added)

In short, experts tend to confine themselves on what they know.

3. Knowledge problem. There is also the tendency for experts to lean on models and mathematical equations to "scientifically" construct predictions while disregarding the variability of the human response aspect.

According to F. A. Hayek, ``the unavoidable imperfection of man's knowledge and the consequent need for a process by which knowledge is constantly communicated and acquired. Any approach, such as that of much of mathematical economics with its simultaneous equations, which in effect starts from the assumption that people's knowledge corresponds with the objective facts of the situation, systematically leaves out what is our main task to explain."

4. Prediction dilemma.

The public tends to look for specific answers or forecasts from experts rather than examining the reasoning behind them.

For publicity seeking experts, an audacious gambit on forecasting could be a rewarding endeavor.

This, in my view, is where Mr. Roubini has capitalized from basking as a celebrity during last year's crisis.


The google trend chart shows of this phenomenon.

According to NYMAG, ``Since his forecasts proved correct, or semi-correct, Roubini's become an economic celebrity, practically a household name (okay, maybe only in the wonkiest of households, but still). He's been the subject of countless magazine profiles and is lauded by his peers. His independent economic research firm, RGE, has flourished, and he's always speaking at some conference, somewhere, around the globe. (And, with respect to Julia Ioffe, who wrote a great profile of the economist recently for The New Republic, we're not buying the idea that he's taking his message on the road out of some noble sense of duty. His fees must be astronomical at this point.) His stock has gone up with the ladies, too; as he recently told New York, "The recession has been great for me."

In my view, this represents as a personal victory for Mr. Roubini. He attained both the fame and the attendant fortune of booming business and adoring ladies. And maybe some of his critics could have been envious of this.

For us, this goes to show how doing our homework matters more than simply listening or heeding on the opinions of celebrity gurus.