What management scientists can learn from historians’ fallacies

This second blog posting on why scepticism is required when reading the conclusions of management research focuses on the implications of the historian’s fallacies (over 100 of which were identified by David Hackett Fischer in his 1971 book on the subject) for management research.   These fallacies arise because the outcomes of history are clear, seek but the processes that created them rarely are  And Fischer highlighted how, ed in attempting to explain what happened and why, salve historians are prone to making errors of logic.

Economists and historians

Management research also tends to be backward facing, typically seeking to codify the success of superior performing companies into lessons others can learn.  Like historians, management researchers seek to reverse engineer the reasons for success after the fact – not deduce from observation made at the time.   However appreciation of the potential pitfalls in this approach – and the humility that such understanding brings – has yet to spread from the faculty of history to the faculty of business.

The Financial Times columnist, Gideon Rachman, neatly captured the distinction between historians and economists (the intellectual antecedents of management scientists) in a piece entitled Sweep Economists off Their Throne.  Rachman contrasted historians’ appreciation of the limitations of what can be learnt from history with the aspirations of social scientists who seek to derive general, predictive laws from studying the past.  “History can suggest lessons and parallels and provide wisdom – but what it cannot do is provide a sociological equivalent of the laws of physics.  Yet this seems to be the aspiration of many economists, who notoriously suffer from ‘physics envy’.”  As Rachman concludes, the failure of economists to predict the financial crisis shows both the limitations of the deterministic approach and how damaging it can be.

20/20 hindsight but future-blind

Seeking to interpret the past is one thing, but using that interpretation to forecast the future and make recommendations based on that is a different matter altogether.  How many historians do you see making predictions as to what will happen in the future, let alone offering policy prescriptions based upon their forecasts?  Not many, probably because historians have learnt that the past is a far easier place to be right – the reasons can appear very clear after the fact when you know how events have panned out.

This particular tendency has been tested by behavioural psychologists.  Subjects were given data leading up to a particular event and then an outcome.  Some were given the real outcome and others the complete opposite but both positioned as having actually occurred.  Despite this difference in fact, both groups were highly confident that they could have predicted the outcome given the data provided.  However in a second series of experiments using the same sequence of events, rather than presenting the outcomes as facts, they were described as ‘educated guesses’ about the future.  In this case the subjects’ confidence dropped dramatically.  We have 20/20 hindsight, but confidence in our foresight is pretty limited, probably because it is.  History, especially commercial history, never repeats itself precisely.  The similarities – and differences – only become clearly apparent after the event.

Fallacies of many questions

Under fallacies of inquiry, Fischer included a chapter on fallacies of many questions.  One of particular significance is framing a complex question but demanding a simple answer.  This characterises much management research – seeking to determine from the multiplicity of forces (both external and internal) that collide within the ecosystem of a particular business those that have had the most effect on superior performance.

Fallacies of factual verification

Related to this under the category of fallacies of factual verification is the fallacy of possible proof: demonstrating that a statement is true or false by establishing the possibility of its truth or falsity. Easy to do given the complex system in which businesses operate.  Similarly there is the fallacy of prevalent proof – making mass opinion into a method of verification.  This is certainly the case with companies perceived to be great.  Linking a theory to such a company is a popular way of gaining traction for new ideas, even if the greatness proves to be a chimera.  Enron’s popularity as a case study certainly increased the more it was cited in research.

Also in this category comes the quantitative fallacy – assuming that importance is in proportion to susceptibility to quantification – i.e. facts that can best be counted count most.  This is an easy trap to fall into when highly analytical, deductive reasoning is the default approach.

Fallacies of factual significance

An example of a fallacy of factual significance is the prodigious fallacy, “the erroneous idea that it is the historian’s task to describe portents and prodigies, and events marvellous, stupendous, fantastic, extraordinary, wonderful, superlative etc., and the more wonderful, the more historic and significant it is.”  Then there is the aesthetic fallacy: the selection of beautiful facts or facts that can be built into a beautiful story, the attempt to create an objet d’art by an empirical method.  In both cases, likely consequences of focusing research on successful companies.

Fallacies of generalisation

Under fallacies of generalisation, Fischer starts with the fallacy of sampling: generalisations which rest upon an insufficient body of data – a sample which misrepresents the composition of the object in question.  This is something to which management research is highly susceptible given its post hoc selection of successful companies as the sample for investigation.  An extension of this, ‘that deserves special condemnation’ in Fischer’s words, is the fallacy of the lonely fact – a statistical generalisation from a single case, for which you can read case study.

Fallacies of composition

Related to these are the fallacies of composition.  These include the fallacy of difference – the tendency to conceptualise a group in terms of its special characteristics to the exclusion of its generic characteristics – and the fallacy of non-difference: rendering a special judgment upon a group for a quality which is not special to it.

Fallacies of causation

Probably the most significant group for management researchers is fallacies of causation.  This was the subject of the previous post which focused on two fallacies in particular: cum hoc, propter hoc – mistaking correlation for causation – and pro hoc, propter hoc, putting the cause before the effect.  Management research is also highly susceptible to the post hoc, propter hoc fallacy.  This translates as ‘after this, therefore on account of this’, and it is the fallacy of believing that because one event follows another, the second has been caused by the first.  (There is no way of knowing whether the second event would have occurred even without the first.)  As the logician Madsen Pirie has neatly summarised it: “unfortunately for our predictive ability, every event is preceded by an infinite number of other events.  Before we can assign the idea of cause, we need rather more than simple succession in time.”    Pirie points out that regularity is the chief requirement for deducing cause and effect – one event always follows another, such as pain following the act of sticking a pin in your finger, but that history does not allow such deterministic experimentation.  “This gap in our knowledge provides a vacant lot in which fallacies can park at will.”

Other fallacies of causation that are relevant to business include the reductive fallacy – reducing complexity to simplicity and diversity to uniformity; and the related mechanistic fallacy – treating the various components of a system as if they were detachable, isolable, homogenous, independently operable and therefore capable of being added or subtracted from the causal complex.  Given the complexity inherent in business systems, their presence in management research is highly likely.

Fallacies of narration

Under fallacies of narration, Fischer states: ‘A historian must distinguish between the analysis of the becoming of an object and an analysis of the object it has become.’  This is particularly the case with great companies.  Research can fall into the trap of describing a great company as it is now, not how it achieved greatness.  Fischer also points out that narration is one of the most common and more characteristic historical forms of explanation, also that a story explains how and what but not why; and as such it is not an explanation at all in epistemological terms.  In this category, Fischer also includes the didactic fallacy – attempting to extract specific lessons from history, and to apply them literally as policies to present problems, without regard for intervening changes.  Sound familiar?

Summary

The above presents a selection of the hundred plus fallacies that Fischer mentions.  Underlying all of them is the idea that the past is far murkier than we might like to think.  The study of history has been likened to reading Macbeth by lightning flashes – tiny extracts are brilliantly illuminated while the rest of the play can only be guessed at due to the intervening periods of darkness.  The greatest danger with the backward facing process is that it results in an illusion of understanding – thinking we know what is going on in a world that is more random and complicated than we would like to believe.  Until appreciation of Fischer’s insights is widespread in business academia (mandatory reading on all doctorate programmes?) the risk of false conclusions that are over-confidently asserted will continue to plague the prescriptions that management researchers produce.

Elusive Growth: Why prevailing practices in strategy, marketing and management education are the problem, not the solution, by Jack Springman, will be published in Summer 2011

J

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About Jack Springman

I am a consultant with experience in business strategy and customer strategy development, customer management and customer service transformation.