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Rationality and "Wicked" Problems

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By TMFShadowDragon
January 27, 2009

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Wicked Problems

A reasonable criticism of The Motley Fool investment newsletters, including Inside Value, has been that the macro-economic conditions of the last year were ignored. Who can argue? The market collapse has been dramatic. The data I have shows that year-over-year, 15 Jan to 15 Jan, that the last year has been the worst year, adjusted for inflation, for S&P returns since 1875. The 10 year return ending on Jan 15, 2009 has also been the worst 10-year return (Jan 15 to Jan 15) over that same historical period. Avoiding even a part of last year's disaster would have made a huge difference in portfolios.

What I would like to do is to examine the "macro" environment from different perspectives to better understand just how one should best do that in the future. Obviously lacking a time machine does limit options.

The purpose of this first essay is to look at the difficult of the challenge.

Much of the thinking out there about how we should make decisions or plan has been influenced by the rationale approach to solving problems that has had tremendous success in science and engineering. Economics, ever eager to emulate the "hard" sciences, became the main advocate of the "rational decision" maker. Everywhere policy makers, managers, consultants jumped onto the idea that the basis for decisions could and should be objective and hence decision making could and should be rational.
Who could argue with the results?

The streets have been paved, and roads now connect all places; houses shelter virtually everyone; the dread diseases are virtually gone; clean water is piped into nearly every building; sanitary sewers carry wastes from them; schools and hospitals serve virtually every district; and so on. The accomplishments of the past century in these respects have been truly phenomenal, however short of some persons' aspirations they might have been. [Rittel and Weber (1973)]

Truly the Age of Enlightenment....

Of course, more recently this ideal of the rational decision maker has been widely critiqued as trickier problems have emerged. Early critics of the concept of "rational decision making" were two professors of planning from Berkeley. They wrote a paper in 1973 that articulated what they termed "wicked problems". Their original paper:

"Dilemmas in a General Theory of Planning", by Horst W.J. Rittel, Professor of the Science of Design and Melvin M. Webber, Professor of City Planning, U of Cal (Berkeley) from Policy Sciences 4 (1973), p. 155-169

What they said was that there was a big difference between the problems of "hard science" and those in the social domain. The abstract from the paper:

The search for scientific bases for confronting problems of social policy is bound to fail, because of the nature of these problems. They are "wicked" problems, whereas science has developed to deal with "tame" problems. Policy problems cannot be definitively described. Moreover, in a pluralistic society there is nothing like the indisputable public good; there is no objective definition of equity; policies that respond to social problems cannot be meaningfully correct or false; and it makes no sense to talk about "optimal solutions" to social problems unless severe qualifications are imposed first. Even worse, there are no "solutions" in the sense of definitive and objective answers.

The problem solving techniques of science and engineering have been designed for "tame" problem that can be isolated, evaluated objectively and tested rigorously - all according to the scientific method.

I'll come clean here - I have a doctorate in Physics and I've spent nearly 25 years as a military (and now security) "operational analyst". I should be - and still am to the degree which it makes sense - a disciple of the scientific method. However, more than half of my career has also been spent trying to understand complex situations, such as operations, involving the military, like Bosnia, Afghanistan and Iraq, as well as multi-jurisdictional quagmire of homeland security and public safety. For these situations it's been clear to me for some time that we cannot "engineering" solutions. The problems were and are "wicked".

Rittel and Weber claimed that it was "morally objectionable for the planner to treat a wicked problem as though it were a tame one, or to tame a wicked problem prematurely, or to refuse to recognize the inherent wickedness of social problems." [Note: despite what some economists might think, economics problems *are* social problems.]

Rittel and Weber went on to identify ten (10) attributes of "wicked" problems, which it's worthwhile to think about when trying to understand macro-economic conditions and the implications for investing.

1. There is no definitive formulation of a wicked problem.

For "tame" problems we can "exhaustively" formulated so that the problem solver has all the information needed. That's not possible for "wicked" problems. The understanding of the problem includes the ideas for solving the problem. If anti-inflationary measures are one's idea of solving the problem, the problem will be understood as an "inflationary problem". Problem understanding and problem solving become identical. Every specification of the problem becomes at once a specification of the remediation. If we cannot have a definitive statement of the root of our economic current situation, how then can we be definitive about when that the situation will be resolved? How will we know when to recognize that the situation is changing?

2. Wicked problems have no stopping rule.

The neat thing about working science problems is that you know when you've solved it. You know when you're done. By contrast solving "wicked" problems is the same as understanding them; and there is no way to say that you have definitively understood the problem. It's worse - "wicked" problems are casual chains of interconnected open systems - poverty can be seen as rooted in local economic conditions which are rooted in lack of skills which is rooted in poor education which is rooted in.... Eventually you stop trying to "understand/solve" the wicked problem when you run out of time, money or patience...."this is good enough". Maybe it's not. This will affect our ability to understand the macro-economic will we know when we've understood it well enough?

3. Solutions to wicked problems are not true-or-false, but good-or-bad.

"Tame" problems have objective criteria that allow one to say..."solved" or "not solved". By contrast "wicked" problems are evaluated on "good" or "bad" / "better" or "worse", which means that the evaluation of the solution will depend on one's set of values. To a trade unionist, a solution that doesn't protect American jobs will be judged as "bad", while one that does will be "good". Businesses, which desire cheap labor, will see it completely reversed. Is it really true that either position is always right in all circumstances? Here I should point that even the most ardent supporter of "non protectionism" will agree that a nation's military should be a protected national monopoly.

4. There is no immediate and no ultimate test of a solution to a wicked problem.

A solution attempt for a "tame" problem can be immediately assessed in terms of how good it was by those involved. "Wicked" problems, on the other hand, produce a chain of consequences. What looked like a good solution one day becomes a bad solution when undesirable consequences emerge. Many industrial solutions were initially seen as wonderful until terrible environmental or health consequences emerged. How long do we have to wait to know if the answer's a good one or not? One could argue that the de-regulation in the 1980's, meant to solve the stagflation of the 1970's, has produced the consequences of today. Was it worth it?

5. Every solution to a wicked problem is a "one-shot operation"; because there is no opportunity to learn by trial-and-error, every attempt counts significantly.

We can't do test or experimental runs with society. You make an attempt and you have deal with the consequences, foreseen or not. If you decide to let Lehman Brothers fail or not, the government has to deal with the consequences. Is a company "too-big-to-fail"? Shall we find out? What if it was? What if it wasn't and we didn't let it? Either way there are consequences....thousands or even millions of people's lives may be harmed. It could even - through an unforeseen set of causal events - be your life that's harmed. Which ever way is decided, once done it cannot be completely reversed.

6. Wicked problems do not have an enumerable (or an exhaustively describable) set of potential solutions, nor is there a well-described set of permissible operations that may be incorporated into the plan.

With "wicked" problems, you never know if you exhausted all the possible solutions. If we're trying to assess the effect of the macro-environment on investment options we'll likely end up with a set of possible "scenarios", but there'll also be the whole set of possible "scenarios" we didn't' think up.

7. Every wicked problem is essentially unique.

For two similar "wicked" problems we can identify properties that are the same and ones that are different or unique. Of course, they could be unique in ways that don't matter (i.e, are trivial), but by "essentially" unique, Rittell and Weber meant in ways that DO matter. Many have compared the current situation to Japan and to the Great Depression - and there are similarities, but there are also differences. Do these differences matter? Perhaps the differences are, in fact, overriding.

8. Every wicked problem can be considered to be a symptom of another wicked problem.

A social problem is a difference between a state of affairs as it is and as it is perceived it should be. Understanding and resolving that problem becomes a process of looking for the root cause. After all, you're supposed to solve the root cause and not the symptom. The problem is that every "wicked" problem can be seen as a symptom of another "wicked" problem.

Thus "crime in the streets" can be considered as a symptom of general moral decay, or permissiveness, or deficient opportunity, or wealth, or poverty, or whatever causal explanation you happen to like best. The level at which a problem is settled depends upon the self-confidence of the analyst and cannot be decided on logical grounds. There is nothing like a natural level of a wicked problem. Of course, the higher the level of a problem's formulation, the broader and more general it becomes: and the more difficult it becomes to do something about it.

It's fashionable to see US housing as the root of the problem. "The problem started with US housing and it will end with US housing".......unless of course, the US housing problem was a symptom....

9. The existence of a discrepancy representing a wicked problem can be explained in numerous ways. The choice of explanation determines the nature of the problem's resolution.

Here we get into politics...or, rather, political views. For the above example of "crime in the streets", a Chief of Police will see the problem as not having enough police officers. Similarly, the military will see the problem in Afghanistan as lack of security, while humanitarian aid workers will see it as lack of basic needs. The choice of explanation, in a logical sense, is arbitrary. In actuality, attitudes determine the choice. Turning to the economic situation, belief in the "free market" conditions us to see the problem in terms of maintaining the "free market". Never mind that no one would advocate a "free market" for "national defense". Never mind that no where is there a purely "free market", even in the US Adam Smith's invisible hand has always had a helping hand. Of course, maybe the problem is that the markets aren't free enough.

The analyst's "world view" is the strongest determining factor in explaining a discrepancy and, therefore, in resolving a wicked problem.

10. The planner has no right to be wrong.

In science, hypotheses are presented for others to refute. If a hypothesis is refuted, the one who proposed it suffers no blame. With "wicked" problems, you don't have that luxury. You're liable for the consequences whether you could have reasonably foreseen them or not.

Those are the characteristics of "wicked" problems. There "wickedness" is rooted in the pluralism of society. We have no theory which tells what ought to be the state of affairs. We've divided society up into political, economic and military. Those divisions were and are arbitrary. As much as that division has worked for us, there's no guarantee it will continue to work. Is it sufficient to evaluate only the macro-economic conditions when making investment choices? Must we also include political and military? of the recent few months would suggest....sometimes, "yes". As Rittel and Weber put it:

we have had to rely upon the axioms of individualism that underlie economic and political theory, deducing, in effect, that the larger-public welfare derives from summation of individualistic choices. And yet, we know that this is not necessarily so.

With this essay I don't mean to imply that there's no place for rigorous, rational analysis, but only to point out the huge challenges facing investment decisions which are contingent on both macro-economic conditions and micro factors related to investment options.


The Dragon