Predicting the Future of Legal Services

WHAT BUSINESS MODEL WILL PREVAIL?
- by Gerald A. Bush, Ph.D. and Robert D. Brown

UNDERSTANDING THE MOVES OF LAW FIRMS AND CORPORATE COUNSEL

Seeing what will happen in the future can be incredibly valuable. Is there a reliable way to look at the legal services market and predict the future business model? Better yet, by knowing what model is likely to emerge from the ideas being discussed today, are there actions that law firms or corporate counsel can take to engineer an outcome that better meets their goals? Can understanding the psychology of the game help create a business model that will work better for everyone?

Questions such as these are the domain of game theory, the cold-eyed calculations of multi-player interactions that made John Nash of Princeton famous in the movie “A Beautiful Mind”. More recently the amazingly accurate predictions that Bruce Bueno de Mesquita described in his book “The Predictioneer’s Game” have revealed some of the secrets behind the models used in many transformative geopolitical negotiations and high stakes business conflicts.

Read more here...

The Valuable Paradox of Uncertainty

The Valuable Paradox of Uncertainty

The Valuable Paradox of Uncertainty from Robert Brown

View more documents from robertdbrowniii.

Autonomy, Mastery, Purpose

Listen to this presentation by Daniel Pink. The first 10 people to complete this task will get twice as much as I paid you last year.

More on the Flaw of Averages

The Flaw of Averages

Everyone in your company who makes decisions or supports decision-making needs to read
by Sam Savage. Why? Because together you are likely committing the flaw of averages, wasting time and exposing yourself to unnecessary risk. Savage shows you how to avoid this pitfall in a cleverly written, enlightening, and fun to read guide to making better decisions.

Most likely you have never heard of Jensen's Inequality, and most likely you don't care. However, you should care, and The Flaw of Averages introduces why this concept poses profound implications to the way we tend to think about making decisions. The problem is that in thinking about the issues or opportunities we face and the decisions we exercise to address them, we often go through a kind of accounting process in which we consider the best case, most likely case, and worst case scenarios (or any number of scenarios) and the corresponding conditions that have to exist for each scenario to be realized. We let ourselves believe that those assumed conditions are averages that we can use as proxies for the full range of uncertainty we face. Our final conclusion is that the outcome of our analysis closely corresponds to the average real-world outcome and the extent of possible variation (if we get that far). Understanding that, we commit to action, often disastrously so.

Savage reveals the flaw in the traditional way of thinking by explaining the implications of Jensen's Inequality. In short, Jensen's Inequality says that in situations where the output we care about varies in a non-linear way to inputs (which is much of life), the outcome as a function of average inputs (the flawed traditional analytic approach) is NOT equal to the average outcome as a function of the inputs treated as they naturally vary. [For those mathematically inclined, if E() is an operator that determines the average of a sample, and f(Xi) is a function of inputs, then E( f(Xi ) ) does not equal f( E(Xi) ). For those not so mathematically inclined, don't worry. The Flaw of Averages is not a math book; rather, it is a book about making decisions and how math can be used constructively to support that process.]

The way around this failure is to use Monte Carlo simulation to consider simultaneously the effects of the range of the assumptions as they naturally vary on the outcome we care about. Instead of thinking about the outcome as a single point or a constellation of points representing exhaustive guesses about the future, we see the full range of potential outcomes and their likelihood as a distribution. We see the implications of our decisions and corresponding uncertainties as a picture and not a point. As a result, not only do we avoid never ending analysis paralysis, we gain a deeper appreciation for the effect of typically unconsidered outcomes, both good and bad, and are able to plan accordingly with contingencies and options.

Counting Crows?

This explains what happens to the money in my wallet. Well, that's my story.

Where would we be if they had opposable thumbs?

Weighty Choices, in Patients’ Hands

Great article in the Wall Street Journal today: Weighty Choices, in Patients’ Hands.

Selecting and Confirming - A Fool's Errand

Read this story here.

Did you see the same pattern the author did? George P. Burdell, a man known for making significant patterns, didn't either. You are wise, too.

What you are witnessing in that article is a nationally distributed example of selection and confirmation bias, a fool's errand - looking for something that really is not there.

If you remove the outlier in each graph, the graphs pretty much no longer tell the story the columnist thought he was telling. This type of force-fit linear analysis does little for advancing critical insight. The first graph shows that there is no real favoritism being demonstrated. The columnist is just wrong. But so is Obama. No one (rich or poor) is really being helped significantly more than anyone else.

However, if you look at the last three graphs, the real story is that the stimulus is having little effect. There is virtually no response in unemployment and bankruptcy for stimulus dollars spent (at least up to the time this data is purported to represent); there is only a slight response to foreclosure rate.

So what happened? George and I can't judge the author's intention, but if I had to let my suspicions be made known, I would say the author went looking for a story, simplistically used linear analysis tools (which are highly sensitive to outliers), and found the story he wanted to tell. Unfortunately, he missed the real story that potentially demonstrates the greater policy implications.

We face a number of really important debates right now in this country. Obscuring clear thinking and true exploratory dialog will not be helped with this Fox correspondent's lack of rigor.

More Linear Thinking

I conducted a simple analysis about a week ago based on numbers published at Recovery.Gov. The site actually tells you how the Obama administration developed their forecast. (Editor's note: the links are apparently no longer available.) Essentially, they describe what amounts to a linear distribution based on the population of the states. I wanted to see if they were telling the truth and if there were any significant departures from it.

I scraped the jobs saved forecasts from the recovery website and divided them by state populations (rounded to nearest thousands) to develop the per capita forecast of jobs savings. Then I ordered the resultant per capita saving rate from lowest to highest.

The results show that, indeed, the stimulus money is being distributed (or at least, purported to be) proportionately to state population. The glaring exception is Washington DC, which is receiving funds at a rate 71% higher than the average and 76% higher than the median.


The thought behind the distribution of the stimulus funds is really no more sophisticated than a simple population pro rata.

The other interesting pattern that occurred is that the richest states are clustered among those receiving the higher rates of funds distribution, and the poorer states are clustered among those receiving the lowest (wealth being measured as reported at CNN). However, the clustering is not strong enough to warrant the claims of another recent article by Fox News that indeed richer states are being paid at a disproportionately higher rate.


Blue states are the poorest states, and red states are the richest.


This, combined with the USA Today article lead me to conclude the following. Except for DC, the Obama administration is following the pattern they described. (We might want to ask what kind of jobs are being saved or even created in DC. The answer is, of course, more bureaucrats.) Richer states are more industrialized states. Industrialized states are more urban. Urban populations disproportionately tend to vote for more interventionist/socialist policy makers. So what we’re seeing is not so much a direct nefarious attempt at political repayment as much as we’re see the self-selecting and compounding effects of interventionist policies securing interventionist representation. It represents the mechanism by which votes are bought on a large scale over time.

It also demonstrates that the poorer among us are not being lifted up at a higher rate by these direct interventionist activities. It has long been noted that interventionist/socialist programs do not benefit the people they claim to benefit. I wouldn’t use this analysis as proof to support that claim, but it does fit into the postulated pattern.

Finally, I have to say that I was really shocked at just how linear the distribution of funds is. I suspected that the description at Recovery for the rationale for disbursements was rough. I expected to see less correlation. Now, if the Obama administration had a econometric model that identified population as the key driving variable for stimulative effects related to employment, I could understand that. But they did not have any such empirically based model. Regardless, they forcefully asserted that their efforts would have the direct causal effects they sought. If we do believe that stimulus has causal effects, the effects were demonstrated to be embarrassingly strongly inverse, at least up this point; that is, if you believe the correlation is due to some underlying causal mechanism, even if it is the opposite of what the Obama administration postulated and forcefully advocated.

I don’t believe there is a causal relationship, direct or inverse, to the current stimulus efforts to recovery. I think the stimulus money has been absorbed more or less by state governments and dissipated in the oh so efficient way that governments work, and in parallel, the economic forces at work shed labor at a much higher rate than anyone anticipated would happen. In fact, the evidence is that the time rate at which the economy has produced unemployment is the fastest in this country’s recorded history.

Ultimately, the Recovery.Gov figures are less about jobs saved and more about the way money is redistributed (i.e., embarrassingly simplistic), nothing more.

Overcoming Barriers to Effective Decision-making

No one can ever eliminate mistakes or undesirable outcomes from the choices they make. But you can gain the skills necessary to help you and your colleagues consistently reduce the likelihood of being wrong with important decisions. "Overcoming Barriers to Effective Decision-making", reveals why decision-making in a business context is so difficult and what can be done about it, especially when it relates to Marketing & Business Development. It focuses on the aspects of human behavior and offers five practical steps to clarify ambiguous intentions, generate creative alternatives to achieve your goals, and create value by understanding risk and uncertainty.

Where: The Biltmore, 817 West Peachtree St. NW, Suite 915, Atlanta, Georgia 30308-1163
When: June 17th | 7:30-9:30 am
RSVP: by email mira@creativegrowthgroup.com no later than June 15th

We can go home now

I wonder if the same robots will discover metamath?

A pox on both their houses?

Black Swans Fly Again

Nassim Taleb provides some very interesting interviews with Russ Roberts. I'm still thinking through what he said. Some ideas I agree with. Some I disagree with. Others I'm surprised by.

#1 Taleb on Black Swans

#2 Taleb on the Financial Crisis

Inflation, the Silent Tax

Friend and fellow blogger, Rick at Economics for One, wrote this note on the taxing effects of inflation.

I note the following: The other interesting, if not chilling, effect of inflation is that inflation induces greater and greater dependence on government services and employment, which Rick alluded to by explaining the dilution of money as a function of distance from the government. Since people typically want more money rather than less (or more accurately, they want the benefits that more money can seemingly purchase as long as thy have more relative to the amount everyone else has), this dilution gradient likely steers people through this preference to less distance from government distributions of money. (In fact, in light of the Obama stimulus plan, numerous people have recently counseled me to seek government contract employment or seek ways to obtain stimulus money.) It seems to me that this then provides an opportunity for the political class to buy more power by linking access to money to votes for the political class that provides the money. The net effect is the strengthening of the power base of a political class…until the inflation get so unmanageable that the economic system collapses. The net effect of inflation, then, is not only a silent tax but an increase in power for the political class that induces the inflation.

A clarification on political class…Party affiliation may fluctuate as people obtain benefits or lose purchasing power as they perceive those effects being connected to a given party. But a class of people that seek political power will engage in these inflationary tactics regardless of party affiliation. As Friedman and Hayek pointed out, statism extends across political parties, leading to ambiguity and dilution in the real, pragmatic difference in the parties.