Employer’s incentives to signal are my chief suspect. People who do hiring want an easy way to defend their decision: credentials are the obvious solution; no one actually tracks how their decisions turn out anyway. I think Caplan mentions this, though I do not recall—perhaps it was in another review of the book I read instead.
However, my real suspicion is that medium to large companies are mostly indifferent to outcomes, and as a consequence actively prefer ambiguity. One reason is because principal-agent problems are huge and increasing, owing to the number of principal-agent layers everything goes through. For a tangible example, consider warranties—lots of companies now subcontract warranty fulfillment. I have had exactly 0 good experiences where warranties were handled by another company, because that company’s incentive is to deny everything. Subcontracting is a plague upon the face of the earth.
Another reason would be the nature of publicly traded companies: success is defined in terms of an increase in stock price, and stock price depends wholly on investor confidence. Which means publicly traded companies are fundamentally confidence games. As a consequence, the only time company leadership is incentivized to improve clarity is when they are already certain the company is doing very well. By contrast, companies with mediocre and poor performance are still trying to increase investor confidence, and uncertainty which permits confidence is preferable to clarity which destroys it; it seems like they are incentivized to add noise. Since these are the incentives that govern how strategy is chosen, this problem rolls on down the organization.
Employer’s incentives to signal are my chief suspect. People who do hiring want an easy way to defend their decision: credentials are the obvious solution; no one actually tracks how their decisions turn out anyway. I think Caplan mentions this, though I do not recall—perhaps it was in another review of the book I read instead.
However, my real suspicion is that medium to large companies are mostly indifferent to outcomes, and as a consequence actively prefer ambiguity. One reason is because principal-agent problems are huge and increasing, owing to the number of principal-agent layers everything goes through. For a tangible example, consider warranties—lots of companies now subcontract warranty fulfillment. I have had exactly 0 good experiences where warranties were handled by another company, because that company’s incentive is to deny everything. Subcontracting is a plague upon the face of the earth.
Another reason would be the nature of publicly traded companies: success is defined in terms of an increase in stock price, and stock price depends wholly on investor confidence. Which means publicly traded companies are fundamentally confidence games. As a consequence, the only time company leadership is incentivized to improve clarity is when they are already certain the company is doing very well. By contrast, companies with mediocre and poor performance are still trying to increase investor confidence, and uncertainty which permits confidence is preferable to clarity which destroys it; it seems like they are incentivized to add noise. Since these are the incentives that govern how strategy is chosen, this problem rolls on down the organization.