CHAPTER 1-6 RECONCILING MULTIPLE GOALS You like long vacations, but you also like to make a good living. You want to help your daughter improve her baseball skills, but you also want the rest of the Little League team that you coach to feel that you are treating everyone fairly. You want to buy a new boat, but you also want to help bring over an immigrant family from the old country. Cost-benefit analysis as presented in Chapters 1 to 5 presupposes that you have a single criterion of success on which to compare the various alternatives. In ordinary business situations, money profit -- or more accurately, present value -- serves as the goal, and hence the criterion of success. Profit is a wonderfully convenient criterion because in business most relevant elements can be reduced to money. But in most situations in your life, you have more than goal in mind, which complicates the analysis. Even in business decisions profit often is not the sole criterion. The welfare of employees, the community, and the nation as a whole may also be goals for a business. Non-profit organizations not only have the complication of multiple goals, but none of their goals can be stated in monetary terms, usually. An individual, too, always has many wants, and often your desires conflict with one another; the most obvious example is the conflict between the desire for leisure and the desire for the fruits of labor. We must find a way, then, to choose the most satisfactory course of conduct reconciling our multiple goals. But the task is difficult. And as is generally the case, the more difficult the problem, the less applicable the technical devices available to us. The devices that this chapter is able to offer are quite rough in operation, and do not lend themselves to numerical calculation, unlike the previous chapters in this respect. We could entertain ourselves with some fancy mathematical schemes; in my experience, however, these formulae tend to confuse and hide the problem rather than clarify it and make it easier to handle. For the moment, let us assume that we know our goals. In many situations, however, we cannot immediately specify the goals. Every one of us has heard her/himself saying, "I don't really know what I want". Sometimes the situation is even more complex: "I want not to want" may sound illogical, but it has a very real psychological meaning, and a very important role in human life. Before we can proceed with choosing among alternative courses of conduct, we must clarify what we want to accomplish -- if anything. That is, we must decide which goals are relevant, and what the criteria of success will be. These convoluted matters will be left for future chapters. This chapter will tackle only the problem of reconciling multiple goals when they are known. Let's begin with a business example. Consider a business whose owner believes that she has an obligation to pay her workers "decently" even if this means paying more than necessary to have their services. She also wants to make as large a profit as possible, consistent with her other goals. And she wants to ensure the survival of her business. How should she decide how much to pay the workers? Let the owner consider a wage that is, say, 5 percent, 10 percent, or 15 percent above the market wage. She can calculate the effect upon her profit, her personal wealth, her capacity to invest in expansion, and the size of the cushion which will protect the survival of the business. She can then ask herself whether paying 5, 10, or 15 percent above market is worth foregoing the purchase of a new computer system, say, and/or a 20 percent decline in the survival chances of the business for the next five years, or the calculated reduction in her personal wealth. This is the method of trade-offs. You consider how much you must reduce your movement toward one goal when you increase movement toward another goal. Then you choose that combination which you most prefer. The decision is similar in nature to the individual's decision about whether to make a donation to charity. Some other business examples include the decision about whether to finance a program to re-train workers whom the firm must cut off the payroll because their old skills are not needed; whether to clean up a slag heap created by the firm's mine even though the law does not require the cleanup; and whether to give money to the town to build an outdoor swimming pool. Sometimes the firm may consider that these actions are simply good business in the long run, as General Motors considered it good business not to set the highest feasible prices for its cars after World War II when autos were in short supply. But this is not a problem in multiple goals. It can be handled just as advertising or pricing or other multiple-variable alternatives are handled in Chapter 00; it would be phony to characterize the case as charitable or altruistic.1 Non-profit organizations face multi-goal problems more difficult than those that for-profit firms face. Consider, for example, a foundation that has taken as its mission the research fight against two diseases, malaria and strokes. How should it allocate its resources between the two? It can ask itself how many people can be protected against malaria if it spends one or two or four millions of dollars on malaria, and the same question for stroke. Then it can ask whether one person protected from stroke is worth two persons protected from malaria, or three or four. Finally it can allocate its resources so that the highest number of "worth" units are achieved. Here again we are using the method of tradeoffs. This brief description skims over enormous difficulties such as: How soon can the benefit of the research be expected to begin? What actions would other foundations and government agencies take if this foundation does more or does less? How should the various bad effects of a disease, such as disability and death, be weighed? A satisfactory full-scale analysis of this decision could take months. Hence most decisions on these matters are made without much thought at all, which also is not a good alternative. In multi-goal situations I suggest you at least compose a written statement of the problem, adducing all the relevant available facts and numbers, and making explicit the procedure you are using to balance the several goals. Then use that statement as the basis of discussion with at least one other person. This procedure is likely to turn up aspects of the decision that you may overlook if you don't put the matter on paper. And explicitly stating the procedure you are using to deal with the several goals together is likely to help you make sense of that process. Another example and method: If the U. S. Postal Service were a private firm, it could set the prices for 1st, 2nd, 3rd, and 4th class mail simply with reference to the single goal of maximizing profit. But the price-setting decision is much more difficult for the publicly-owned U. S. Postal Service, which has a responsibility to provide service to every home in the country at the same price, as well as to make enough money to (almost) break even. But because it is a government monopoly, it cannot raise prices sky-high if that would seem grossly unfair, even if that would increase profits. And its relative pattern of prices must seem sufficiently fair to the various classes of customers that they do not create political trouble. These are all difficulties that a private firm does not face. One way to handle a problem like this one is to first arrange the conditions to meet the necessary "constraints", and afterwards to maximize profit (or other criterion). In the case of the Postal Service, this means meeting the constraints by making the commitment to serve every home, and also setting an upper limit on the price of first-class mail, and then choosing the other prices in such fashion as to bring in the most "profit" -- that is, revenue minus expenditures. This is the general method of the constrained maximum. First you arrange conditions to meet all but one goal, and then you use ordinary cost-benefit analysis to choose the best alternative available within those constraints. A convenient way of handling multiple goals -- the way that we often go about it without noticing exactly what we are doing - - is by "satisficing". You specify a level of attainment of each goal that would leave you reasonably well-satisfied, even if the goal is not fully attained, and then you seek to achieve those levels jointly. If you cannot manage to reach a satisficing level of each goal, you then consider where you might trim with the least pain, and keep trimming around until you have selected a combination of levels that are jointly attainable. This method does not seek to maximize your satisfaction, because maximization is an ideal beyond our mental capacities in most cases. Satisficing is a helpful approximation or "heuristic". Please do not lament, or consider as an imperfection, that our mental capacities are limited. Our limitations constitute an inevitable state of affairs that must be recognized by anyone who wishes to view the world realistically and deal with it effectively. This idea will reappear again and again in this book. Less-realistic views of human nature that aim for the very best conceivable state of affairs have great intellectual charm. But they also can be a delusion, a snare, a waste of resources, and a danger. Sometimes the problem of multiple goals is so vexing that you can only surmount it by breaking up an organization into separate activities. The health research foundation may decide that it can best do justice to malaria and stroke by setting up a separate foundation for each. And the clash of goals for the postal service may be so severe that the public can best be served by narrowing the U. S. Postal Service's goals to serving only those classes of customers who would not be served by private enterprise, and then allowing private enterprises to legally deliver mail all who want to pay for their service. Sometimes social goals conflict so sharply that the only possible resolution is a trial of strength among the contending groups. (Hopefully, this trial is through politics rather than weapons.) For example, the National Park Service had to decide whether to spend $365,000 to a) corral and airlift 400 wild burros out of Grand Canyon, or b) kill them at a cost of $30,000, or c) simply leave them as "pests which erode the environmentally fragile canyon" and deprive other animals of food. (AP, CU-News Gazette, May 23, 1980, p. B-6). The money to capture or kill the burros could be used for many other purposes either by the government or by taxpayers. People's differing values for the burros, the canyon, and for other human purposes lead to different decisions, and there is no single "rational" solution. Inevitably the decision in such a situation will arise out of politicking and negotiation by environmental groups, animal- rights groups, federal bureaucrats, and other interested parties. Chapter 2-3 tackles the issue of deciding what your goals are. FOOTNOTE 1 Mention problems with corporate charity. The slag heap is good problem for Milton Friedman. Page # thinking mlgol16% 3-3-4d