On Management and Social Sciences
For a long time, I have been struggling to understand why theories taught in business schools on management, economics, and the wider field of social sciences don't work in the real world. In order to understand the reason behind this poor performance, one should go back to the history of science and specifically physics, starting with the Renaissance.
Johannes Kepler, a mathematician, astronomer/astrologer, and philosopher, lived in the late 16th and early 17th centuries. In the early 17th century, he came up with the laws of planetary motion. Before him, Ptolemy in the second century had described the motion of planets as circular but couldn't figure out the reason behind consistent mathematical anomalies. Kepler, on the other hand, discovered that planets move in an elliptical orbit. His work had an important impact on Isaac Newton, who is considered by some as the greatest scientist of all time. Newton pioneered the first scientific revolution through classical mechanics according to which the motion of two objects can be predicted with precision. This revolution was characterized by its deterministic laws, such as the motion of planets and gravity, in which the relationship between cause and effect was straightforward. The industrial revolution greatly benefited from this science, and many things started to become mechanized.
Physics' first revolution with Newton's work had a far-reaching impact outside its field. Descartes and Leibniz's deterministic philosophy came straight from Newtonian physics. According to them, there is a straightforward relationship between cause and effect. Despite the fact that physics abandoned Newtonian determinism long ago, it's amazing to see the wider acceptance of this philosophy even in today's complex world.
Two centuries passed, and great technological progress was achieved. However, this progress couldn't resolve the issue around the motion of more than two objects until Ludwig Boltzmann came along and developed what is known as statistical mechanics. Statistical mechanics transformed the Newtonian deterministic view of the world into a probabilistic view, a world of possibilities, that allowed macroscopic properties to be understood based on statistical properties of microscopic components. For example, the temperature and pressure of a container can easily be determined without knowing exactly the positions and velocities of its atoms and molecules.
The discovery of sub-atomic particles and their complete unpredictability in the early 20th century dealt a blow to determinism, and physics moved into the world of quantum physics and non-linear systems. In recent decades, physics has been dealing with an even more challenging problem: the world of complex systems, in which components or agents interact with each other in unpredictable ways. When you add uncertainty about the agents themselves, the whole becomes overwhelming. Welcome to the world of complexity, the major challenge of the 21st century.
Social sciences, including economics, management, politics, and psychology, have tried hard to imitate the success of physics. "Physics envy" has been coined as the attempt of social scientists to use concepts from physics to describe and study human systems. Statistical mechanics, for example, which introduced the study of ensembles instead of individual units through a probabilistic view, was extensively applied to human affairs. For example in the 19th century, Belgian Quételet used the concept of normal distribution to define the average man with its average physical, intellectual, and moral characteristics.
Economics and its modern theory have been using a bold assumption of an equilibrium between supply and demand punctuated by a short state of non-equilibrium. There is also a general perception that the economy is machine-like (Newtonian physics), subject to the orthodoxy of optimization. The worst part is assuming that economic affairs are thin-tailed and described and measured through averages and standard deviations.
Moreover, ergodicity in physics, which describes the behavior of a group of molecules similar to that of one molecule through time, was blindly assumed in economics. For example, what happens within a group of individuals is assumed to be the same as what happens with an individual through time. Ergodicity has also been assumed by behavioral economists.
In management theory, there is again an assumption that people make decisions following a utilitarian function made to maximize outcomes. The rational agent model is pervasive in everything from strategy to marketing. The mechanistic (physics again) way of designing and planning strategies is widely taught in business schools.
The overall performance of social sciences' attempts is disappointingly poor. In 2018, Nature published an article that shook the whole field of social sciences, as it was found that only 13 out of 21 major studies in social sciences were able to be replicated. Replicating studies is the cornerstone of the scientific enterprise. But beyond the experiments, the theories that have been developed simply don't work in the real world, and this observation is coming from the real-world experience of practitioners.
After talking about the faulty assumptions, the reason behind the mediocre outcomes lies within the complexity of human systems. As pointed out in a recent article in Nature, while in the world of astrophysics the Hubble telescope is able to observe and draw conclusions on planetary behavior, in a social world, stars change their behavior across time and space while being watched by the telescope which itself is trying to make sense of that change. For example, a marketing study can capture people's behavior, which is a function of the study itself and whose results affect subsequent behavior. This leads to the issues of self-fulfilling prophecies and reflexivity. In the corporate world, through an exercise of strategic planning, companies issue forecasts and analysts factor them into their prices, which end up circularly impacting the company's behavior.
All in all, social sciences are still lacking an overarching and dynamic theory from which a robust body of science and knowledge can be developed and falsified. We are still in the middle age of social sciences, awaiting its renaissance. Yes, social sciences have not found their Kepler moment yet, as stated by the sociologist Robert Merton 62 years ago, and they still haven't found it to this day. Whether the new digitized world capturing human behavior à la IoT will contribute to this quest is a big question. At a starting point, there is an urgency to remove the legacy of determinism and machine-like thinking from their pedestals and start adopting a more complex, dynamic, adaptive, and evolutionary thinking to address the world as it is.
