2nd Assignment

1. RAM vs. Bounded Rationality

This week's assignment required us to find a news item involving a firm and try to explain the actors' behaviour given the rational model or bounded rationality.

I browsed through some news items, and below you'll find a link to the Google story that caught my attention, please read!
  

http://www.nytimes.com/2014/09/25/technology/exposing-hidden-biases-at-google-to-improve-diversity.html?_r=0

Google operations have been signaled for showing bias in their recruitment process with over 70% of their work force being male.

Since this realization Google has taken the task to remediate this lack of gender diversity and has acted to eradicate conscious and unconscious bias conducts within the company.

One way to explain decision making of organizations is through the rational actor model (RAM).

With RAM, preferences are defined over outcomes and decision makers maximize their net benefits by choosing the alternative that yields the highest level of benefits.

Based on this, Google has the task to recruit the best and brightest of their fields, specially engineering and technology.

Since statistically there are more male Engineering students in the university, surely they received more applications from men, interviewed more men than women, their selection process filtered the best candidates (both male and female) and just by probability, women were outnumbered, but Google accomplished their task of hiring the best and most talented young professionals, sex is not an issue in the RAM decision making, but a coincidence derived from probability.

They needed the best candidates; they filtered applications, went over their abilities, interviewed them, and with the available information, hired the most qualified people, people that would be the most useful to the company.

It is the rational explanation for their behavior, rationally gender would not be a factor to consider in order to hire qualified team members, male majority is just a coincidence.

Now, Google is confronted with a problem. They have not been inclusive enough, their work force is predominantly male and that is not giving a good public image.

Again, based on RAM they identify being seen as sex bias as an inconvenient for their company, asses their options, consult the experts (in this case their RH group) and come up with a solution that will bring consciousness to their work force and make them actively involved in eradication of any unconscious bias.

 More over, they realize diverse work groups stimulate creativity; so rational thinking will encourage them to seek for diversity for the good of the company.

On the other hand, the theory of bounded rationality contemplates that organizational decision-making is not always rational, not intentionally so, but rationality can be limited or bounded by the cognitive experience and emotion of human beings.

RAM relays on the assumption that organizations are able to judge all their options instantaneously and can make the decision most suited to the desired outcome needing no time to adjust.

In reality we know that people need time to adjust and learn, results will be not immediately optimal, and it is not that organizations are not rational, but they do not adapt easily, they are set on their ways and rationality changes as their process of adaptation evolves.

Rational thinking of Google’s directives might have been limited by the way of their own experience. Being used to interact with male colleagues most of their lives might have set a precedent that bounded their rationality when hiring candidates to join their ranks.

They could also have less experience with woman, girls could have rejected them when they were teenagers and now feel uncomfortable whenever they find themselves in a situation where they have to relate to women.

Whichever the case, they might not even realize it, but by feeling more comfortable interacting with men, they are taking the decision of hiring more male than female candidates every time.

Their intention might be to hire the most qualified candidate, but their rationality is bounded by their experience and emotion, limiting the decision process resulting in an unbalanced sex distribution within their work force.


Notes on improvement:

I decided to include how I would improve this blog entry on a separate note, so it is more easy to asses if I have progressed during the course of this class. The original blog was posted on 09/24/14 and today, 14/12/12, I'd like to make a few adjustments to it.

First of all, my mistake was to not clearly define a decision made by the company, I chose a news item and vaguely explained several decisions occurring around the news, which made it harder and not very clear to evaluate.
The item of Google's bias towards male employees involves several decisions taken by the company, I should concentrate on the decision of google to start lectures to identify and tackle hidden sexual bias within company employs, quoting the article "a 90-minute lecture targeted specifically at a skeptical, scientifically minded Google employee"

Based on RAM, the decision of making these lectures seems optimal for Google's directives, having consulted with their RH team, considering they have all the information necesarry from a trusted and expert source and in response to critiques from outside organisms about their disparity in work force, lectures arised as the optimal solution to identify and counterattack hidden sexual bias in the work force.
Information is deemed optimal since it comes from their expert RH team of doctorates on human behavior and acting on critics on biast practices matches the belief of google to be an inovative, friendly and rated as one of the top places to work in the world.

Appart from needing to define one decision made, my post lacked understanding and use of the concept of bounded rationallity on the organizational level. I made up some bogus scenarios in which the cognitive process of individual decision makers in google might have stood in the way, BUT I did not cover the principles of behavioral theory of organization.
To remediate that, I'll try to elavorate on how the decision made by google of implementing lectures to identify and prevent sex bias in their company, can be aligned to the principles of bounded rationality in the organizational level.
In this case, google decision makers have chosen to make the issue of gender disparity part of their agenda, this problem might have been categorized as irrelevant on previous occasions (the disparity is clear since the companies beggining), but now that it has been signaled by external parties and maybe some other triggers that are not clearely addressed by this article, this issue gains new purpose and is categorizen as a relevant stimuly to respond on. 
To an extent, google decision makers are relying on emotional contagion with their lectures, considering that what will be taught, will engage their workers and make them involved and concerned on the issue of sex disparity. Results of that are already mentioned on the piece, “Just raising the awareness was enough for people to think about it,” and cases in which employees are making use of what they learn in these lectures are described.  In this way, employees and managers are forced to get out of parallel processing of information and go into serial processing, with new information and new rules and experiences to encode.
With time, the experiences learned in these lectures will derive in a new organizational memory, turning this experience into sets of rules and routines that will be incorporated to the parallel processing of activities in the firm, ideally automatically allowing people to impartially act on situations and towards people regardless of sex.

2. Friedman's position, The Business of Business 2.0 

I have no experience in economics or business, my background is in Chemical Engineering so when given the task of writing my position ex –ante about Friedman’s proposition, I had a lot of trouble finding the right angle to explain my position.

For one, I have the idealistic notion that the business of business should not only be generating profit, but on the other hand, what I see in our society is different and I kind of agreed with Friedman that today’s business model has the increase of profit as a top priority.

So what should I write? Do I agree, don’t I agree? I believe I focused my first blog entry in explaining how I thought business should act, but always having the idea of agreeing with Friedman in the back of my mind, the business of business (at least now a days) is increasing profit.

However, after reading Friedman’s article and watching the documentary in class, I cannot agree with Friedman any longer, his ideas may have held some truth in his time, but now is time for the era of responsible capitalism.

For once, we cannot stand around to wait for “daddy” government to set all the rules and regulations for organizations and individuals to act. What if there are loopholes, what if there are not enough regulations for waste treatment? Or fair wages? Should the company then maximize revenues and ignore the pollution they generate or the poor working conditions they have?

Corporations are powerful players in our society, and should take the responsibility as such.

It is important to understand that there is a way for businesses to make monetary profit and do good for the community at the same time, doing good can be profitable.

Yes, in the end, you want your business to have a profit, they are not charities, in order to grow and develop and continue to do good to society, businesses in this model of social capitalism have to be profitable.

However they should not forget the triple line of people, planet profit, having a good equilibrium between the three.

1st Assignment

1. Urban density and per capita petroleum consumption.

As an engineer I was trained to understand and explain mathematical correlations; functions can have weird behaviours, but mathematically, they are easy to map and understand.
It never occurred to me that in social science you could do the same with behaviours, you can find explanations for surprising correlations by developing theories, and well developed theories, much as mathematical functions, can explain and predict how this correlation came about and how would it behave when variables change.

A study of 32 cities by Newman & Kenworthy in 1989 concluded that there was a strong link between urban development densities and petroleum consumption.

Figure 1. Source [1]

The above projection suggests that there is a correlation between the petroleum consumption and the density of a population, more specifically, that the more densely populated a city is, the least amount of petroleum will that particular city consume per capita.

What would be a good explanation for this correlation found in 1989?

Some possible explanations may be:

1. Density of population refers to the amount of people per hectare of territory, a more densely populated region has more people living in a smaller area which means that work spaces, services and housing would be all closer together, making people living in these cities less likely to use the car.

Compared to less dense cities where the population is spread out in a larger territory, the use of the car in densely populated cities can become impractical and inconvenient, too many people taking out their cars to cover small distances can cause unnecessary traffic jams and people most likely choose  walking or using the bicycle instead of moving around by car.

Since cars and motorcycles run mostly on fossil fuels, a generalized reduction of the use of these means of transportation in a city, would contribute to lower the average petroleum consumption per capita.

2. Densely populated cities usually have a better-developed network of public transportation; out of the need to move so many people around and avoid traffic and consequential CO2 emissions from the use of cars public administrators usually manage to set up an efficient, comprehensive and accessible public transport system.

A well organized public transport, would make people more inclined to make use of this facilities instead of taking their own cars to move around the city, which also contributes to lower the petroleum consumption per capita related to the use of fossil fuel powered individual transportation.

3. Densely populated cities usually also tend to make housing spaces smaller and more practical than the houses in cities with a lower population density where they have more space for their living accommodations.

Take for example Tokyo, where people live in very small studios or tiny apartments (more people to accomodate in a small area means their individual or family living quarters need to be smaller) , these small houses won't require as much electricity and would also have less or more efficient electric home appliances, this makes the electrical needs of an average household in Tokyo or in other densely populated cities lower than less dens cities where they have more space to light up and accumulate more possessions that need to be powered by electricity.

The higher electricity requirement per household also raises the petroleum consumed per capita (asuming some electricity is generated by direct combustion of crude oil).

4. Since this particular study analyses cases of mostly cities in developed countries, where people are better educated and usually have a better quality of life, living in densely populated areas may in turn make people more conscious of their limited space and resources, which can contribute to making people either by self recognition or by governmental policy to be more careful with their resources, as such, this consciousness might lead to a better management of recycling, search for alternative energies, concern for CO2 emissions and as a hole, a reduction of the petroleum consumption per capita.

This relation studies the behavior of major metropolis in the world, cities in developed countries that have more resources and their urban planning is more efficient than in underdeveloped cities. These are “smart cities” that have planned their growth and in some way keep it under control and as such conform with the reasoning explained above.

Note about post modification: This post was updated december 2014 to include a more clear listing of the possible theories (for clarity, explanations were included as a list instead of a run on text) . The introduction was changed to include my understanding about finding correlations after reading the teacher's post and has more clarity than the initial draft incorporating a better understanding of the role of theory and  causal and intentional explanations, the analogy X equals Y helped a lot and made this assignment a lot more clear. The correlation was used since the first posting of this blog and I believe it fits with the x-->y puzzle)

 2. "The business of business is to increase its profits"

The business of business will always be to increase its profits; this is what businesses are set up to do. However, I do not think monetary gain should be the only way to monitor profit; can’t profit be defined outside money? Can’t profit be also measured in the good to the community, or the environment or in the positive social impact a company may have?

When we think of corporations, we cannot isolate the business from the social context; corporations are players in a community and as such have the same responsibilities as any other social player, even more so because they are, in most cases, influential social players.

Managing social responsibility might not really be the business of business, but it is a way in which the business “survives” and strives in order to keep generating monetary profit and aside from monetary profit, which is very important to every corporation, businesses can also be socially and environmentally profitable.

Corporations are not charities, they will only generate employment, give back to their community and have a positive impact on our society as long as they remain profitable, but monetary profit does not have to be in dispute with a social conscience, on the contrary, giving back to the community, caring about the environment or promoting a good work environment, can contribute to make a company profitable.

Companies and corporations that show their values in action will attract partners that align to their values, appeal more to their community, attract costumers that are interested in consuming the products or services of a responsible enterprise and thus giving the company a solid consumer pool based on trust for their products and cause.

A company that shows values and responsibilities and can prove they live up to them, can be easier to trust and thus have more costumers.

Companies are not isolated and if they seek to increase profit, they will need to be active and accepted players in their community.

Of course there are only few corporations who adhere to this way of thinking, I’m not saying this is the way it is, rather the way it should be.

Corporations should have responsibilities because they are a part of the community and they have an impact over it and it is the responsibility of the corporation to ensure this impact is a positive one.

However, just like with individuals, corporations not always choose to be responsible, some take very literally the idea that their business is just to generate profit; making money just for the sake of making money as a top priority, casts a shadow over any other value.

Reference:

[1] Newman, P. W. G. and J. R. Kenworthy. 1989. Cities and Automobile Dependence: 

An International Sourcebook. Aldershot, UK: Gower.