Your analysis is more subtle than Harford's, but I wouldn't call your theorem a contradiction, since it appears to be true! You have uncovered a nice tension in what looks like a complex n person, m institution, coordination game between the all eggs in one basket/trial by error strategy. Very interesting.

Joel, the rule I prescribed is a filtering rule designed to avoid type 1 errors, misidentifying a good prospect when it is bad. There are a number of reasons to discount the value of talking with existing franchisees, and it certainly doesn't deserve to be one of the top 3 due diligence tips. Many people will simply use the opportunity to confirm their beliefs instead of testing them. Indeed that is what due diligence is all about - looking for information that could, would, or tend to disconfirm your initial beliefs. (As far as I aware, I don't have any detailed thoughts about brokers/consultants - but I probably will have something after my review of Lesley Curran's radio piece, on Segerto and Caruso's blog talk radio.) @Todd, see my comments to Perry Shoom. And read the wikipedia article on confirmation bias.

There is an ever growing awareness that disclosure laws are largely ineffective. Having read your paper, I would recommend that you listen to the fraud tactics in "Weapons of Fraud" by Anthony Pratkanis. I think that you will find his examples on telemarketing fraud very insightful.

What do you make, then, of the failure of hospitals to allegedly not follow these simple rules regarding the use of catheters? http://www.washingtonpost.com/wp-dyn/content/article/2010/07/12/AR2010071204893.html

I think that I would look at Scott Plous's piece on the Cold War as being a perceptual dilemma as good example of the time of indeterminacy you are looking for - I don't find the Quine claim very compelling. Plous showed that with actual data from the US/USSR decision makers that each systematically framed the problem, or guessed about the other side's preference rankings, in different ways that allowed them to evaluate the evidence of each their and the other's propensity for a first strike in entirely different ways. Very interesting stuff.

Jay Goltz had a good take on this today. http://boss.blogs.nytimes.com/2010/06/08/its-the-economy-mr-bernanke/

One of the problems with this is that because the federal/state governments are out of cash, they are going to be heavily scrutinizing any attempts to pass of employees as independent contractors. See: Play/plan/Prevent: http://www.dol.gov/regulations/2010RegNarrative.htm

Yes, we are bad decision makers when we allow inconsequential information to frame our thoughts. But, if we wanted out of this trap what should we do?

Michael; Why do you think that much can be explained by models of physics which have no actors that learn anything and react accordingly?

Co-opetition is an excellent book, full of interesting ways to see how to create/claim value in a distribution chain. It is informed by game theory but not what one would call an application of the mathematics of game theory.