Pinocchio toy

Earning a Pinocchio

There’s a ferocious battle underway as the Affordable Care Act—Obamacare to both friends and foes­—is being implemented. Everyone’s looking for information that will bolster their case, and that can lead to trouble when business decisions and politics mix.

In such a policy environment, one effort to keep the debate honest is the Washington Post’s Fact Checker column by Glenn Kessler, who assigns Pinocchio ratings to claims made by debate protagonists. His August 4 column critiques a Chamber of Commerce release of a survey by Harris Interactive focused on small business owners’ intentions as the law is implemented.

The Chamber, an opponent of the law, got a little carried away in its release of this latest survey, reporting that the survey showed three-of-four small businesses will make decisions to cut back employees in one way or another as a result of the law’s implementation. The real answer when the survey was properly analyzed by Mr. Kessler is that less than 10% made such a projection.

Maybe politics had something to do with the error. But this high-visibility goof gives us an excuse to make some important points about the assessment of how business leaders make decisions.

First, the main problem was simply a rookie mistake in reporting a result based on only a portion of the total sample. It’s believable that a partisan survey sponsor might encourage such a mistake, but it’s equally likely that they didn’t understand that critical nuance in the survey. The research firm should.

Pinnochio toy

Projecting decisions

The real problem is the difficulty of accurately gauging business decision makers’ projections. Part of that relates to the focus of the question. Has there ever been a law that has had such a long lead-in time as Obamacare? Or one that has combined complexity with real uncertainty about how it will work? Or that has been subjected to such trench-warfare opposition, including mischaracterization and misinformation? Based on work we’ve done, most small business owners ­like those the Chamber surveyed ­ still have little understanding of the law’s impact on their businesses. As a result, they have difficulty knowing what they would do under anything but a hypothetical scenario.

From the many studies we’ve done asking business leaders to make projections, we know that a set of factors drive hiring decisions. Current and anticipated sales are the top factor, combined with work load, labor availability, technology and an assortment of lesser factors. The shift of the U.S. from a manufacturing-driven to a service-driven business sector has probably contributed to a modest shift from a pattern of hiring in anticipation of more work to a pattern of hiring in response to more work. The key point is that it’s a complex decision, and seldom one driven by one specific cost element.

Surveys are great tools to support a point. But political energy can sometimes overwhelm good sense, and outright mistakes or mischaracterizations have a deadly impact on credibility. In this case, Mr. Kessler gave both the Chamber and Harris Interactive four Pinocchios, the highest on his scale, calling it a “whopper”. Surveys of business leaders to assess their projections of future plans need to reflect the complexity of their decision making.

Click here for an example of a good survey of business intent.