The Fourteenth Banker Blog

May 30, 2010

Systemic Failure Fueled by Cognitive Bias (Unskillful thinking)

Filed under: Running Commentary — thefourteenthbanker @ 12:39 PM

Some may wonder why the 14th banker is talking so much about BP.  It is because I see in BP what I see in big banks. The failures of the company are well documented already and will be exhaustively documented over time. This article talks about systemic failure in the BP organization as evidenced by its response to safety issues among those involved in clean up efforts.

The article states matters is pretty straightforward ways. Let me color them a little differently. What is happening in our large corporations is a magnification of what happens in society in general. In general, humans are fallible. Some things are done right, some things done wrong. Right and wrong are judging terms and get all caught up in moral passions, so sometimes the terms skillful and unskillful are used. It might be said that something that has been done right, has been done skillfully.  An error may be doing something unskillfully. Being unskillful is not as harsh a description as saying something has been done wrong. However, that does  not relieve the unskillful action of its consequence. In large corporations, there is a tendency for more things to be done unskillfully. Now I know some would argue that to the death.  They would say that in a large corporation there is more expertise, training, specialization, resources, mentoring, etc.  Those things are all true but they refer to narrow job skills, not to life skills, emotional skills, social skills, ethical skill, and yes, moral skills or cognitive skills.  You might say in regard to the oil spill, they are the skills that kill.

BP said it’s deployed 22,000 workers to combat the spill, which experts now estimate has spewed 37 million gallons of crude oil into the Gulf of Mexico . At this point, much of the oil remains offshore.

What is BP saying here?  That they have done enough?  BP is operating within its paradigm, which says, if we respond according to industry protocols we will be effective in mitigating this disaster? Also, how do they define the disaster?  Is it primarily an environmental disaster or a financial disaster?

“The organizational systems that BP currently has in place, particularly those related to worker safety and health training, protective equipment, and site monitoring, are not adequate for the current situation or the projected increase in clean-up operations,” Michaels said in the memo.

“I want to stress that these are not isolated problems,” he continued. “They appear to be indicative of a general systemic failure on BP’s part, to ensure the safety and health of those responding to this disaster.”

With all of BP’s problems, would they consciously add to their problems by neglecting to provide for reasonable safety for responders? There are two possible answers. Yes, and no. If yes, it is because they are making rational decisions that this is the lesser of two evils. They need the PR benefit of showing all these workers out there more than they worry about the sickness of the workers. Probably, this is based money centric decision-making. I heard yesterday on the radio about a worker that went through training, was called up to work, and decided to quit instead of working because the pay was not worth it. So for perhaps $5 extra per hour BP wasted the training and had an empty safety suit instead of a worker.  Spend an extra $10 million and put people to work safely.

If no (remember the question) then they are simply unconscious regarding the matter. Can this be possible?  Cognitive Bias would say yes. This is a way big list on Cognitive Bias on Wikipedia. The problem with big corporations including BP and large banks, is that they reinforce cognitive bias and make individuals unskillful. Revolutionary idea? I live it.

Graham MacEwen , a spokesman for BP, maintained that his company is being responsive to any problems as they develop.

Ask the people of Louisiana about this.  Confirmation Bias.  Normalcy Bias, Belief Bias.

— Concerns that BP’s manager of workplace safety “does not appear to operate with the full support of the company, nor does he seem to have the authority necessary for the job which he has been tasked.”

BP obviously has a bureaucratic process based on Illusion of Control.

“We strongly suggest that BP place someone in this position who has the authority and the ability to make changes expediently in order to address the safety and health of cleanup workers.”

— BP not addressing concerns about heat stroke. “There continue to be multiple heat-related incidents each day, some of which have been serious.”

Wishful Thinking, Optimism Bias

Jordan Barab , deputy assistant secretary of labor for Occupational Safety and Health, said that OSHA is doing what it can to urge BP to release more data, and so far doesn’t think that cleanup workers needed more extensive training.

“From what we know now about the hazard the workers are facing, we think the four-hour training is adequate,” he said. “That being said, we are constantly reassessing what’s going on down there.”

On part of government, possible Expectation Bias, Normalcy Bias, Neglect of Probability, Optimism Bias

So this is a quick look at the notion, rather obvious I suppose, that unskillful thinking is the norm in relation to most crisis.  In fact, research shows that under pressure, cognitive biases become more dominant.  This is why different perspectives must be brought into crisis scenarios.  The tendency to gather around existing supposed experts to solve problems they created is self-defeating.

Simon addresses the same matters today in regard to the Treasury being stuck in its current thinking.  One of his links in the post is this one on Cultural Capital, which is another form of Groupthink.



  1. A skillful analysis 14. I am happy to see you continue your quest to draw parallels between corporate players, financial and or otherwise, who skillfully shape reality to fit their needs while in crisis or “business as usual” mode. It seems to me that within the Cognitive Bias realm there is a relevant partner in the hierarchy – the Outcome Bias – where corporate players engage in shaping reality to achieve a desired outcome. The power couple at work can now be described as: Cognitive Bias + Outcome Bias = Corporate Reality (Corporate UNreality or hell).

    The Outcome is the goal. This is always their goal. Think about it…WHATEVER it takes to achieve the desired outcome, the goal – twisting the truth, exaggerating, illusion of control, optimism, are applied to the task. Corporate workers are and have have always been slaves to the Outcome. The American poeple are slaves to BP’s Corporate UNreality.

    When the Outcome is not realistic and the things we must do in support of a flawed outcome are not truthful and or honorable – we become flawed, untruthful and dishonorable too. And it feels like hell…because it is hell.

    Comment by Susan Marie — May 30, 2010 @ 3:58 PM | Reply

  2. 14th writes: “Some may wonder why the 14th banker is talking so much about BP. It is because I see in BP what I see in big banks.”

    I was completely taken back when I read you (14th) consider yourself in line with “classical economics” and recommend Michael Hudson and link to the New Economic Perspectives blog. I had assumed you would find Hudson too radical. Arguably, a whole generation of politicians, economists and business leaders has been “brain washed” by the free market ideology from the Chicago School and the Austrian School of economics (Cultural capture.) IMHO, what needs to be worked out in this generation is reversing the excesses of free market fundamentalism.

    I can’t help feeling Hudson is on to something when he says what is needed is a “mixed economy”. Where there is economic planning by the government and where capitalism is regulated. Yes! — The regulation of capitalist enterprise. — Witness the BP oil disaster in the Gulf of Mexico. The cost of this environmental disaster will be socialized. The BP oil spill and global financial crisis, so obviously, share a similar provenance and mind set.

    What Hudson calls junk economics includes: (1) a deregulated financial system leading to housing and financial bubbles, (2) non-taxation of unearned income, (3) privatization of the Commons (ie, water, natural resources, infrastructure, utilities). I think we are definitely on to something here.

    Comment by tippygolden — May 30, 2010 @ 4:2

    Comment by tippygolden — May 30, 2010 @ 4:31 PM | Reply

    • I believe we need a middle way. Not central government planning, not unregulated markets. I hope to start a series on this soon.

      Comment by thefourteenthbanker — May 31, 2010 @ 9:32 PM | Reply

      • Thanks, 14th. I will follow your posts with interest. Something which is neither central government planning nor fully-deregulated markets leaves a large middle ground to explore. What can I say. A life worth living is for those who can really do something they care about and are making a difference.

        Comment by tippygolden — June 1, 2010 @ 6:01 PM

  3. Great insight/analysis tippygolden. Thank you for connecting the dots.

    Agree with the thought: “what needs to be worked out in this generation is reversing the excesses of free market fundamentalism”.

    This will be The Greatest Task of our lifetime…I’m in.

    Comment by Susan Marie — May 30, 2010 @ 6:24 PM | Reply

  4. I would simplify by just calling it piss-poor management. With the mergers of the 90’s the focus shifted from running an honest, cost-effective operation to meeting Wall Street’s expectations. Current TBTF financial management works like this:

    . Absolute budget control – 2%over or under budget and the manager is replaced. Save the company big bucks and you are history. Reimbursable projects will always be grossly overestimated and come in within 2%, and the scope will have been reduced.
    . Measure stuff that is unimportant to the business and eliminate folks who don’t make their numbers. Corollaries: 1) All numbers will be made no matter how much creativity is required. 2) No numbers/metrics necessary for running a good operation will exist. 3) If you want to get rid of someone for political reasons give them numbers to meet that are impossible.
    . Do the minimum required to meet regulatory requirements and use the least skilled folks to do that job. Pray that no TBTF ever loses their data center.
    . Manage diversity by requiring everyone to be the same.
    . Never, ever, own up to a problem.

    Comment by oldgal — May 31, 2010 @ 7:58 PM | Reply

    • Well said.

      Comment by thefourteenthbanker — May 31, 2010 @ 9:34 PM | Reply

      • Oops, I forgot the part about the management methodology being an org chart and a process flow. Thinking for oneself is not conducive to good performance.

        Comment by oldgal — May 31, 2010 @ 10:09 PM

      • Process is about rules and rules are about control. So in an inherently risky business you need rules. But, most of the rules these days are not about risk, they are about revenue. As Dan Ariely, Dan Pink and others have written, these are a very crude tool and often perversely accomplish the opposite of what is intended by depriving people of the ability or even skill to make good decisions.

        Comment by thefourteenthbanker — June 1, 2010 @ 8:26 AM

  5. Some may wonder why the 14th banker is talking so much about BP. It is because I see in BP what I see in big banks.

    All true, and agreed that this dissonance occurs, but why is it so common in large organizations? I propose that the similarities go even further than you suggest, to the root our culture’s goals for economic activity.

    Our civilization is addicted to a high and sustained rate of growth in economic activity. Individuals have come to expect it; personal financial planning is predicated on it; the stock market demands it; our system of money creation through debt financing requires it.

    Continuous growth in magnitude or activity is incompatible with physical reality. This should not be a statement that requires explanation or generates any controversy. It is (or should be) a blindingly obvious fact. However, it runs directly counter to the requirements imposed by our economic system and our emotional expectations. So when you have a fundamental conflict between the world you want to live in and the world that you actually live in, well, you get lots of examples of poor judgment. This is hardly surprising, since the first precondition to making any single decision (e.g. how to respond to the oil spill while maintaining corporate profits) is to implicitly accept an enormous contradiction at the systemic level. A person’s judgment, under those conditions, will be poor since it starts with an unconscious decision to ignore reality.

    (To be clear: Ongoing growth in complexity or sophistication MAY be sustainable – it is at least not as obviously contraindicated – and there is some of that in our economic system. But mostly our growth is based on increasing the flows of resources and energy through our manufacturing systems and infrastructure, and that’s what I’m talking about here.)

    Comment by GreenEngineer — June 1, 2010 @ 5:19 PM | Reply

    • I believe you are saying that natural growth approaches some limit, certainly in regard to the human capacity. There is a point at which we become hamsters on a wheel, frantically running in order to keep up. Our own human body begins to break down. Every month I hear of a banker stressed to the limit. Some choose valium, some alcohol, some both. Or, reaching the limits of labor productivity, other factors of production, such as blowout preventers, must be kept on the job even after rubber seals break apart.

      Comment by thefourteenthbanker — June 1, 2010 @ 7:34 PM | Reply

      • I am saying those things. Certainly the go-go-more-more-faster-faster-now-now culture has negative side effects on people and the environment.

        But I am saying something else too: I believe it is impossible to consistently make sound, rational judgments when the most basic assumptions underlying ones thinking are (1) false and (2) continually reasserted despite contradictory evidence.

        As the conflict between our culture’s “needs” and reality becomes more and more stark, I expect that the quality of judgments and decisions by individuals and groups will continue to degrade, and actions and ideas will become increasingly outlandish. This will continue well past the point where things that would be considered absurd or horrible today become accepted as normal and commonplace. (Anyone care for a Tea Party?)

        Comment by GreenEngineer — June 1, 2010 @ 7:43 PM

  6. Unfortunately our experience with BP and the financial institutions must force us to recognize that the modern corporate structure is very successful at concentrating rewards and diffusing responsibility.

    Comment by Anonymous — June 1, 2010 @ 10:32 PM | Reply

  7. […] big “rational actors” by lawrence baxter on June 3, 2010 An excellent recent blog by an industry insider is timely for turning a spotlight onto the fact that large organizations, […]

    Pingback by some reality about really big "rational actors" « the Pierian muse — June 3, 2010 @ 12:38 PM | Reply

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