Following our discussions on moral virtues, it is pretty obvious that any decision made without wisdom will not produce optimal results.  As shown below quoted from Encyclopedia Britannica on Aristotle’s hypothesis about moral virtue and wisdom.

“Wisdom, the intellectual virtue that is proper to practical reason, is inseparably linked with the moral virtues of the affective part of the soul. Only if an agent possesses moral virtue will he endorse an appropriate recipe for a good life. Only if he is gifted with intelligence will he make an accurate assessment of the circumstances in which his decision is to be made. It is impossible, Aristotle says, to be really good without wisdom or to be really wise without moral virtue. Only when correct reasoning and right desire come together does truly virtuous action result”

That having said, we are now understand more about Ricardo’s theory of diminishing return to scale in that no entity will ever experience positive revenue or sales growth forever.  Recent example from FEDEX shows the proof.  Even though, the Wall Street thinks otherwise.  There are all non-linear, and only positively slope in certain range.  The question is why many institutions trying to push higher?  Maybe, some of the companies are living in hallucination?

One can see the parallel with Ricardo’s hypothesis.  The land in the classical Ricardo example is parallel as the business environment at time t. The innovator, enter the market (fertile land) as the market leader (Apple in smart phone industry), then other players such as Samsung and Huawei came at time (t+i) and make the business environment more crowded or saturated (less fertile land).  These laggards, however, entered the market with better technology.  Therefore, their products perceived by the customers have higher value.  It can be observed that success will create more demand for leisure.  Since time is finite, i.e., there are only 24 hours available a day, the effect of increasing demand for leisure on the market leader is obvious.

The same thing occurs in higher ed.  Harvard as the innovator enters the market decades ago, then followed by others.  Now, that in the higher ed industry, the business environments are way too saturated with all kind of noises, especially when the administrators let all kind of for-profit organizations to join the crowd.  For those who already in the market, they are trying to expand their programs, instead of finding their “sweet spot”.  This strategy finally leads to disastrous outcomes. There are two reasons why this happens. (1). The industry has reached it steady-state, i.e., after the first and second order conditions for maximum were met and (2) Because of bounded rationality as it has been explained by Herbert’s.  Certainly, the captain of those institutions may not have the wisdom and perhaps they are leaving in the state of hallucination that makes them to be unwise and irrational in making choices.   In order to compensate their failures or to prove that they have made the rational decision, then they start to cheat or to cover-up?  In other words, any lack of wisdom leads institutions to make disastrous decisions, policy choice or strategies.  It surely will negatively affect the stake holders and the society as a whole.