Academic Research as Unfiltered Water

Contents of our research journals are like unfiltered water. Decision and policy makers should stand forewarned before they use the contents of academic journals to guide them in their work. Fortunately, most of them maintain a healthy skeptical attitude to our findings and prescriptions until they have more evidence on their efficacy.

This is not to minimize the labor of editors and referees who spend months scrutinizing scholarly work for shortcomings before allowing it to be published in journals. This work may be necessary but rarely sufficient to prepare new ideas and research findings to be put to actual use. The editorial process is already quite arduous, and making it  longer will add more delay before new ideas can be disseminated for broader discussion and evaluation.

Scholarly scrutiny is based on scholarly knowledge with its own limitations. There is much about the world that even the most knowledgeable person does not know. Full consequences of most, if not all, research reports cannot be known until they go through a much longer process of filtration at multiple levels. This can take years, even decades. Only a small fraction of new ideas survive this lengthy scrutiny and experience through trials in the field. When they do, we have greater confidence that the results of putting them into practice have a lower chance of yielding a surprise.

Research findings published in academic journals rarely have had the opportunity to be filtered by experience, robustness, and common sense. Researchers, public relations offices of universities and corporations, as well as the mass media have all the incentives to pronounce on the practical implications of new findings from academic research way before these findings are ready for the prime time. It is only an aggressive decision maker who jumps at such announcements without allowing for the fact that research journals are forums for proposing new ideas that show some initial promise; some good ideas are mixed in with a lot of bad ones in this offering. Temptation to get a jump on the competition, being photographed for the newspapers and testifying in Congress is high for those willing to take the risk of being proved wrong.

The recent brouhaha about the Reinhard and Rogoff research paper is hardly a unique example. Computational errors are not that uncommon. But given time, they have a better chance of being caught and rectified before they do much damage. The story may be remembered more for the consequences of the alacrity in incorporating unfiltered academic research into public policy.

John Wilson Dickhaut (1942-2010)

I first met John Dickhaut in January 1973, when I interviewed at the University of Chicago's Graduate School of Business as a rookie faculty candidate. I noticed his unusual combination of simultaneous playfulness and intensity. Later that fall when I joined him as a colleague, he was going through a difficult personal phase. That unusual combination kept showing up often in conversations "his light-hearted comments had a serious undercurrent, and his serious remarks covered the ideas he was have fun playing with and turning over and over in his head. I once asked him about his intensity, and he told me about his training in method acting when he hurt someone with a knife on the stage, and fortunately for us all, turned from stage to scholarship.

John had graduated from Ohio State three years earlier where he had been trained in behavioral research in accounting, focusing on how individuals used information to make decisions. This area of research derived from ideas on psychology and social psychology, and his dissertation was recognized with the Manuscript Award given by the AAA for outstanding work by young scholars in the first five years of their careers. The commitment to understand information stayed with him through the following four decades as it became both deeper and broader.  His intellectual curiosity, ferment, and honesty never let any doctrinal walls confine him. His free spirit constantly rebelled against any attempt to fit him into any convention or definition. Not surprisingly, chair of the department in which he worked had to be really good at improvisation.

During the seventies and the eighties, when we both served on the faculties of the University of Chicago and then at the University of Minnesota, I saw him dance through a world of ideas with his characteristic panache.  There were years when you could not separate his right hand from his chess board, while the left carried a dog-eared copy of one or the other volume of Bruno de Finetti's Probability in the other. He took his books everywhere--to meetings, classes, and bed "ever ready to talk about the particular theorem or idea that excited or upset him at the moment. A year later, he may be in a different landscape, perhaps with his backgammon set, and a copy of Maurice DeGroot's Optimal Statistical Decisions this time, but just as immersed in both. When he started running, even bitter Minnesota winters will not keep him from doing his eight miles until the doctors had to almost force him to stop. What we saw come out of him during the past 25 years was a result of that deep immersion and constant ferment inside Like in a volcano, what we saw above surface was but a small fraction of the vast pool in turmoil inside him.

John was not interested in impressing anyone with his work. He lived in a world without hierarchy. Everyone he worked with was a friend, a lifelong friend I might say, especially the PhD students who were drawn to him by his intensity, charisma, commitment to work that know no boundaries of time and calendar. What he wrote, when he did, just oozed out, almost as a by-product of his thought and life. There was no separation between the two. I never saw him write for the sake of writing, or to get a publication. In the business and economics departmental culture where intellects are often sought to be measured in pages of publications and number of citations, John did not even pretend to fit in. To him, the idea of doing research for promotion or tenure was alien; it wouldn't be research, and he would not be a part of such an enterprise.  And yet, by not trying to do so, he ended up being a model of scholarship.

John hated being predictable. How do you characterize this unique man? In words of Bhagwata Gita, he was a karma yogi who enjoyed his work, without dwelling of the fruits of his labors. Ultimately, he was a man who would not be modeled.

Paradox of Writing Clear Rules: Interplay of Financial Reporting Standards and Engineering

Attempts to improve financial reporting by adding clarity to its rules and standards through issuance of interpretations and guidance also serve to furnish a better roadmap for evasion through financial engineering. Thus, paradoxically, regulation of financial reporting becomes a victim of its own pursuit of clarity. The interplay between rules written to govern preparation and auditing of financial reports on one hand, and financial engineering of securities to manage the appearance of financial reports on the other, played a significant role in the financial crisis of the recent years. Fundamental rethinking about excessive dependence of financial reporting on written rules (to the exclusion of general acceptance and social norms) may be necessary to preserve the integrity of financial reporting in its losing struggle with financial engineering.

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