Individual, group, and organizational systems share a number of common attributes. These include: a recognizable systemic identity; distinct rituals and practices; differences between the subject and other entities; specific intra-system roles and specializations; a capability to change; the fact that change operates in multiple dimensions; the presence of memory as a referent; and the possibility of systemic learning by reflection.

Let’s add another: Nobel laureate Herbert Simon wrote extensively about the limited boundaries of individuals within organizational roles. Not only is “rationality” bounded by the number of hot items on any executive’s plate at a given time, but also the general scope of considerations formally or informally attributed to the scope of executive role, limit the boundaries of thought.

As I mentioned in last week’s posting, I’ve been reading the psychology of Paul Valery this summer— dating from the early days of academic psychology: roughly the time of Dewey, Freud, and James. Valery examines the limited capability of the individual to concentrate as a function of emotion and attention—- predating George Miller’s notion of cognitive chunking by half a century. Valery’s qualitative, introspective description of attentional emphasis and turning from the wider set of possible thoughts within the potential ken of our minds, is both familiar, and aligned with the organizational notion of bounded fields of inquiry.

Here then is another linkage, via attention and the emotional pull of what we attend to, to link individual psychology with the psychology of small and large grousp

Haldane’s analysis of market failure begins in the cloning of organizational practices across market players. Such “best practice” has had the effect of maximizing benefit within individual organizations by reducing balance sheet risk— with the effect of creating homogeneous industry practices, together with a critical diminution of diversity.  Together with this house-cleaning, the dangers of risk were extruded, through complex derivative transactions— with claims ultimately impossible to track through tangled skeins of multiple linkages.

The effect was to jeopardize the financial system while its discrete players felt secure. Because of the high degree of global interconnection, both between industry players and between risky off-balance-sheet transactions,  financial organizations became increasingly fragile and vulnerable to magnified effects of risky transactions. These concretized as market failure with the collapse of Lehman last year.

What commentators have missed in their enthusiasm for this systems analysis, is Haldane’s reliance on principles of organizational behavior and behavioral finance to act as a firewall in mediating future catastrophe. Notably, is his reliance on Herbert Simon’s use of structured hierarchies in establishing internal organizational boundaries. Haldane’s concrete recommendation is the establishment of hub-and-spoke structures for counterparty transaction. Such structures insure the location of transacting parties while guaranteeing accountability lost through deregulation.

Haldane’s suggestions mirror Simon’s advocacy of three components within executive functioning: leadership, communication, and collaboration. At the core of Haldane’s recommendations, and reliant on  recent work in behavioral finance, is that the sense-giving of authorities, of leaders, acts to shape individuals’ psychological states.

Haldane views the role of authoritative story-telling by leaders that “might head-off future bouts of clinical depression in the financial system.” (Actually, Haldane might have credited President Obama’s  demonstrated capabilities in pursuing these ends. His skills have been extraordinary!) As important, however, are the regulatory structures that insure integrity both within and between financial organizations; as well as transparent communication between systemic boundaries.

Haldane not only describes the systemic imperatives of the present, but the structural and narrative aspects of behavioral mediation that problem-solve the dilemmas as they become clear to us.

The rationality of the satisficing outcome is in providing a platform for future decisions—based upon participants’ newly calibrated inventories of satisfaction versus sacrifice.

At the level of individual behavior, we all learn to satisfice as well. A recent article by Michael Parsons in The Irish Times articulated the toughly virtuous Churchillian satsficings of the British during WW II: “dig for victory, stiff upper lip, crying is for housemaids, must carry on, fight them on the beaches.”

Yet, reflecting, I find myself wondering about the soft virtues of satisficing that we generally ignore. Indeed, not to partake of such virtues is to act utterly irrationally, in contradiction to Simon and the principle, itself. Why not ‘take” what is freely given/gettable to all? Yet, our lockstep notion of satisficing privileges sacrifice in the service of the adequate outcome– without enough (selfish?) emphasis on the freely given and taken, when sacrifice is unnecessary. The banner example is kindness.

I wonder about the self-destructiveness of such behavior. True, pleasure is personally gratifying, and so, possibly sinful. Why risk it, even given our socialization in cultures of pleasurable excess? Behavioral economists suggest to us that we’d prefer to limit the downside of risk (or pain) rather than to maximize potential benefit. But why write down the pleasures of kindness, as Adam Phillips has aptly suggested we do, as weakness when it provides costless pleasure; but for the conscious realization that we enjoy mutuality and reciprocity, and that a productive sense of contentment is not the function of a “stiff upper lip?”

Kindness, it seems, freely given and taken, disrupts the notion that pleasure or satisfaction, must come with personal sacrifice. It might work for organizational decisions, but it certainly disrupts the potential joys of relating to others!