The hidden cost of transparency pledges

Leaders can end up creating more doubt than certainty when they reaffirm what no one is questioning, writes Derek Harmon

 
Leaders often make pledges of transparency to signal honesty and instil confidence. But what if they instead are sowing seeds of doubt?

In a recent paper examining Federal Reserve communications, that’s exactly what I found. The study analyses seventeen years of speeches by the Fed chair, and looks at the effect these speeches have on the VIX Volatility Index, or “fear gauge.” What I show is that the more the chair tried to calm the market by being transparent about their objectives and policy framework, the more volatile the market became.

Why? It’s because most people assume that the Fed is always following their objectives and policy framework to begin with. So when the Fed chair reaffirms what we already think is true, it raises questions. Why are they saying this now? Do they know something that we don’t? What this suggests is that reaffirming something that no one is questioning can end up raising more questions. Put simply—by pledging the obvious, leaders create doubt.

This happens more than you might think. We all take many things for granted. Sociologist Harold Garfinkel called these “background expectancies,” or things we assume to be true and, therefore, no longer question. Pointing out these background expectancies creates uncertainty because it brings them back into focus, making us wonder whether the world could (or perhaps should) be otherwise. For this reason, a teacher that says “today, I will not beat my students with a cane if they speak out of turn” does not reinforce what we obviously believe to be true in today’s educational environment, but rather, creates uncertainty about what must be going on for the teacher to feel the need to reaffirm this in the first place.

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Πηγή: blogs.lse.ac.uk