jml's notebook

Cost of decisions

A few months ago I read The Invisible Hook by Peter Leeson. It's a nice little book about the economics of pirate life, intertwined with an evangelistic tract extolling the good news of neoliberal economics. Also, fantastic title.

The most interesting idea I came across was that any group decision has two costs:

  1. The cost of making the decision (how many people must consent)
  2. The cost of continued collaboration with people who disagree with those decisions (how many people could dissent)

Leeson cites The Calculus of Consent by Buchanan & Tullock PDF to support this. I looked it up and it's 270 pages of very wordy economics. Something for another day.

Nevertheless, the idea is that in a command hierarchy, you can make decisions quickly because the person at the top says "do it this way", and that takes them barely any time at all. Cheap decision, right? Of course, if everyone else disagrees, then that decision has a cost of enforcement, grumbling, etc.

On the other end of the spectrum, if you wait for 100% consensus on a decision, you will be waiting a long time. But you will get the decision that will maximise happiness and compliance, probably.

Pirate constitutions were decided by unanimous vote for this very reason. Every had to be on board (heh heh) with the decisions being made. During battle, on the other hand, the captain ordered people around.

I think this trade off is worth the price of admission in the book. In business, I find we think a lot about the speed of decision making (it is really important) but less explicitly about the compliance cost of the decision. The idea is that there's no right and wrong, but different decisions might demand different trade-offs.

I was thinking about what other variables you might tweak for group decision making, and what might come of them.

The thing that kept coming up was the size of the decision. You can make a decision bigger or smaller and that changes the structure of the costs.

Say you're trying to set up some coding standards. If you want to do it across the whole company, then:

But if you shrink the scope of the decision, then:

(All of this might well be in The Calculus of Consent.)

I guess if you summarise the above, we can assemble a broader list of the costs of decision making:

  1. Consent
  2. Dissent
  3. Implementation
  4. Legibility

How often do you think of these things in your policy discussions?