The Epidemic of Short-termism: Haldane and Christensen Speak Out

Want to Dent the Universe? Think farming not hunting.

Steve Jobs was known to have generally taken the “long view” when making business decisions, and in The Economist article, Taking the long view, Jeff Bezos is profiled as a “seer” who “has often ruffled investors’ feathers by sacrificing short-term profits to make big bets on new technologies that, he insists, will produce richer returns for the company’s shareholders in future.” He terms his method of making these decisions the “regret minimization framework.”

The Innovator’s Dilemma by Clayton Christensen was a book that “deeply influenced” Jobs, and an essential part of Christensen’s doctrine is to take the long view. This is a central theme in his latest offering, How Will You Measure Your Life?. You can read an overview here, and see Christensen discuss it in an interview with Charlie Rose here.

In his article he states:

“If you study the root causes of business disasters, over and over you’ll find this predisposition toward endeavors that offer immediate gratification. If you look at personal lives through that lens, you’ll see the same stunning and sobering pattern: people allocating fewer and fewer resources to the things they would have once said mattered most.”

In the new book, Christensen specifically focuses on the personal side of this issue, and how among high achievers family life typically gets neglected in favor of other pursuits:

“When people who have a high need for achievement—and that includes all Harvard Business School graduates—have an extra half hour of time or an extra ounce of energy, they’ll unconsciously allocate it to activities that yield the most tangible accomplishments. And our careers provide the most concrete evidence that we’re moving forward. You ship a product, finish a design, complete a presentation, close a sale, teach a class, publish a paper, get paid, get promoted. In contrast, investing time and energy in your relationship with your spouse and children typically doesn’t offer that same immediate sense of achievement.”

Andy Haldane is Executive Director for Financial Stability at the Bank of England, and in 2011 gave a Sir Thomas Gresham Docklands Lecture called “Get Shorty.” In it, he discusses the pathology of short-termism:

“We see many examples of self-destructive cycles of behaviour driven by short-termism and impatience – for example, drug addiction. One thing that happens when you take drugs is the chemical stimulation of that limbic, mid-brain, dopamine part of your brain. This causes you to desire instant gratification; it shortens your time horizon, which increases the likelihood of you needing your next fix, which in turn further shortens your horizon, which in turn increases the chance of getting your next fix, creating in a self-destructive cycle.”

Note how he continues on to reinforce Christensen on the family vs. career issue and even take things a step further:

“This is also the case with a more commonly prescribed drug: work. The more we work, the more chance that we get less utility and less pleasure from our home life, which drives us back towards work, again in a self-destructive cycle. ”

Haldane provides some solid numbers to back up the notion that this dysfunctional scenario is a growing problem. Several studies are referenced in the Docklands video, but even more are provided in this transcript of a speech he gave in Brussels in 2011. A few tidbits include:

“But beginning in the 1980s, a whole sequence of “puzzles” in empirical finance began to emerge. These were puzzles only in the sense of being deviations from efficient markets. For Mr Keynes and the Classicists, they would have been anything but. For example, an early set of papers found “excess volatility” in asset prices relative to future dividends and earnings. Investor myopia was one interpretation,
with too great a weight on near-term dividends causing even transitory changes to affect valuation.”