Category Archives: Decision Making

Richard Thaler & Cass Sunstein: Behavioural Economics

Arguably, behavioural economics is Richard Thaler’s baby. And an important baby it is too, being part of an essential late twentieth century trend. At last, economists – spurred on by psychologists and social scientists, stopped seeing people as ‘rational units of intelligent decision making’ and started seeing us as part rational and part irrational bundles of ideas, knowledge, feelings, desires and biases.

It is with these filters, rather than pure rationality, that we make decisions. And that insight was an essential correction to classical economics. It won the psychologist, Daniel Kahneman, a Nobel Prize in economics. His collaborator and mentee, economist Richard Thaler, then led the development of the ideas.

Writing with University of Chicago colleague, Cass Sunstein, they together produced the massive selling book, Nudge. But why is co-authorship enough to justify Sunstein’s place in a management thinker pair, when Thaler led the charge on behavioural economics? The answer lies in Sunstein’s contribution: he’s a constitutional and administrative lawyer with a strong interest in social policy. His thinking helped bring behavioural insights out of the classroom, ad agency, and boardroom, and into public policy.

It’s not just in the supermarket that we get nudged to buy stuff, but when we interact with Government too. And between them, Thaler and Sunstein’s conception of liberal paternalism inspired a number of benign behaviour changes, with no whiff of compulsion. Their ideas were picked up by governments all over the world, including the US, where Sunstein (a former colleague) served in Barack Obama’s administration, and here in the UK, where Prime Minister David Cameron established a Nudge Unit within Government.

Richard Thaler & Cass Sunstein

Richard Thaler & Cass Sunstein

Richard Thaler

Richard Thaler was born in 1945 in New Jersey. He studied at Case Western Reserve University, gaining his BA in 1967. From there, he went to the University of Rochester, for his MA (1970) and PhD (1974).

In his PhD, Thaler started the work that still occupies him today, investigating the economic value of a life. What he found was a huge disparity in people’s evaluation of the worth of one week of their life. When asked to put a value on a week lost, or on a week gained, people needed a high payment to be prepared to give up a week of life. Yet they would be prepared to pay far less to gain an extra week.

This imbalance is, of course, irrational. And that interested psychologists Daniel Kahneman and Amos Tversky. They researched all sorts of biases and shortcuts in our thinking. Thaler became a long term collaborator with the pair.

Thaler stayed in the academic world, holding teaching and research positions at many institutions. His permanent academic homes were the Universities of Rochester (1974-8), Cornell (1978-95) and then Chicago, from 1995 to the present day. It was at Chicago that Thaler met Cass Sunstein.

Cass Sunstein

Cass Sunstein was born in Massachusetts, in 1954. He gained his BA at Harvard College in 1975 and his JD from Harvard law School in 1978. Before returning to academia, Sunstein clerked for justices in the Massachusetts and US Supreme Courts, and served in the Justice department from 1980-1981.

In 1981, he became an Assistant Professor at the University of Chicago, becoming a full Professor in 1985. He remained at Chicago until 2008, when he formally moved to a post at Harvard Law School. However, having become friends with another Chicago Law School professor, Barack Obama, he headed up the Whitehouse Office of Information and Regulatory Affairs from 2009 to 2012.

Behavioural Economics

In 2008, after working together on the ideas in the book for five years, and having known each other for ten, Thaler and Sunstein published a best-selling book, Nudge: Improving Decisions About Health, Wealth and Happiness. This brought the ideas of behavioural economics to a wide audience, and introduced many of us to the term ‘choice architecture’.

Choice Architecture

Choice architecture is a beautifully simple idea. By framing choices in a certain way, we can make it easier – physically, cognitively, psychologically – for people to make one choice rather than another. It’s how supermarkets channel customers and how governments secure compliance.

Choice architects study the heuristics people use to make decisions. These are the mental shortcuts we apply, that save us from having to think too carefully, expend too much effort, and take time over mundane choices. Except these heuristics effectively hard-wire biases into the way we make decisions. These are the biases that choice architects can exploit.

Nudges

A ‘Nudge’ is simply a selection of how to frame (or architect) a choice, so that people can more easily make a choice that will satisfy them. Setting up nudges that satisfy you, at the cost of the chooser is manipulation. If you can avoid forcing your outcomes upon anyone, but make it easy for them to make a choice that suits them, Thaler and Sunstein refer to this as ‘libertarian paternalism’.

The tools that choice architects use are:

  • Setting the right defaults, so the easy choice is the best one
  • Anticipating errors, and therefore making correct behaviour easier
  • Setting up complex choices to highlight the right ones
  • Creating positive incentives for beneficial behaviour

The Behavioural Economics Context

Choice architecture is a subset of behavioural economics. This is the study of how real humans (not the artificial idealised, wholly-rational ‘econs’ of earlier economic theory) behave. Given economic choices, we are not wholly rational. This distorts markets and creates dynamics that do not conform to rational economic theory. This may seem like an obvious observation, but to economists through most of the twentieth century, it was not obvious at all. Year after year, new models and theories worn prestigious prizes. All were based on the myth of the ‘rational actor’.

Now, we know for sure that  this rational actor is an ideal at best and a mythical creature at worst, we can start to do messier, but more realistic economics. That’s behavioural economics or, as Richard Thaler points out, Behavioral Economics: ‘why do the British need a superfluous u?‘, he asks. Because we are not rational, I suppose.

Richard Thaler on Nudge

A lot of great content, though edited with some disconcerting cuts.

 

 

Chip Heath & Dan Heath: Made to Stick

Chip and Dan Heath have a writing style that turns important ideas into simple formulations, and illustrates them with compelling case studies. Their three books (to date) are all best-sellers and each is well-worth reading for any manager, professional, or entrepreneur.

Of the three, the first is not only the one that made their name, but the one that, for me, has the stickiest ideas: Made to Stick.

Chip Heath & Dan Heath

Chip Heath & Dan Heath

Chip Heath

Chip Heath is a graduate of Texas A&M University where he studied Industrial Engineering. He went on to do a PhD in psychology at Stanford University. He is there today, as Professor of Organisational Behaviour at the Graduate School of Business, having also held academic posts at The University of Chicago Graduate School of Business (1991 to 97) and the Fuqua School of Business at Duke University (1997-2000).

Dan Heath

Dan Heath has a BA from the University of Texas at Austin and an MBA from Harvard Business School. He has been a researcher for the Harvard Business School and also co-founded an innovative academic publisher, Thinkwell, whch provides school level textbooks. He now works at Duke University, as a Senior Fellow at The Center for the Advancement of Social Entrepreneurship (CASE), where he also founded the Change Academy.

The Heath Brothers’ Books

Chip and Dan Heath have written three books together:

Each of them describes a series of steps for being effective in doing something – communicating ideas, making change, and taking decisions. I strongly recommend you to read these books – I have gained a lot from each of them. Here, all I’ll do is summarise the main content.

Made to Stick

Why is it that some ideas circulate easily? People like to share them and, when they do, the ideas are memorable, compelling and soon become pervasive. They seem to be almost made to stick.

If we can understand the answer, perhaps we can also make our own ideas sticky. This is the substance of the Heath’s ideas, which they present in a handy acronym: SUCCESs.

Simple: We need to simplify our ideas by whittling away every superfluous detail to find their core, which we can then communicate to others.

Unexpected: One way to get attention is with surprise, and then we can hold that attention by stimulating curiosity.

Concrete: Real stories and examples make our ideas solid. Abstract theory is the enemy of engagement with your ideas.

Credible: People need to believe your idea for it to stick, which means giving them examples they can relate to, demonstrating your authority, and providing ways they can access proof for themselves.

Emotional: We make choices and remember ideas, when they trigger powerful emotions, so you need to demonstrate what’s in it for your audience, in terms of self-interest and emotional payback.

Stories: We are story-telling creatures, and we use stories to guide us in how to respond to situations. They make things real and inspire us.

Switch

One of the key roles for managers is to make changes in our organisations. But it is fiendishly difficult. The Heaths argue that the reason is a conflict that’s built into our brains, between our rational mind and our emotional mind. This idea will be familiar to readers of Daniel Kahneman’s Thinking: Fast and Slow.

The Heaths use the metaphor of an elephant and its rider. The elephant is the powerful emotional aspect of our brain, which can easily take us where it’s going anyway, while the rider is our rational side that needs to motivate the elephant to go in the right direction. They offer a three way prescription to:

  1. Direct the rider
  2. Motivate the elephant
  3. Shape the path

Direct the Rider
Here, we have to find out what works and repeat it, discover specific steps that will get people where you need them to go, and create a direction to go and a reason to go there.

Motivate the Elephant
We don’t do things because we know they are right, we do them because they feel right. So we need to appeal to people’s emotions as well as their reason. We also need to make change easy, by presenting small, simple steps. Finally, they advocate instilling a growth mindset.

Shape the Path
Change people’s environment to shift behaviours and make the changes feel easier. Then turn the new behaviours into habits, by making repetition easy. Finally, use successes to spread the ideas and engage others.

Decisive

Back to Kahneman! Our decisions are disrupted by an array of biases and irrationalities. We jump to conclusions and then become overconfident that we’re right. We look for confirming evidence and disregard other information that conflicts with our prejudices. We’re distracted by  emotions – which make emotionally resonant ideas sticky.

In short, we’re rubbish at making good decisions!

And knowing it doesn’t help, ‘any more than knowing that we are nearsighted helps us to see’, say the Heaths. But luckily they also give us a four-step framework to help us make better decisions: WRAP.

Widen Your Options
Yes or no, this or that, big or small. Narrow choices make bad decisions, so the first step is to explore a wider space of options. And the book shows you how.

Reality-test Your Assumptions
Stop trying to show you’re right and start trying to prove you’re wrong. Only if you fail, then you can start to be confident in your assumptions.

Attain Distance Before Deciding
Shift your perspective in time, place or emotion. How will this decision look in five years, what do people do somewhere different, what would you tell your friend to do?

Prepare to be Wrong
Overconfidence hides the flaws in your thinking, so look for the things that can go wrong and find ways to alert yourself when events mean you need to shift decision.

Summary

What? You want more of a summary than summarising three chunky books in a thousand words. Just go out and read them!

By the way, there are lots of great resources linked to their books, on the Heath Brothers website.

Robert Miller & Gary Williams: Paths to Persuasion

Robert Miller is one of the people who revolutionised ideas around selling, with his Strategic Selling and Conceptual Selling ideas. But of far more relevance to most managers is his second big idea, which he worked on with Gary Miller.

If you want to sell your message, they found, you need to tailor the way you deliver it to the way  others make decisions. And knowing how to do that is not useful only to salespeople.

Robert Miller & Gary Williams

Robert Miller & Gary Williams

Robert B Miller

Robert Miller got his BA and MA from Stanford University, focusing on education, and his whole career has focused on adult education and training. Following service in the US Navy during the war with Korea, Miller worked his way to become a Vice President at consulting and training company, Kepner-Tregoe. He remained there from 1965 to 1974.

While there, he developed his thinking about the sales process that was to lead to a series of books, and the formation of a new sales training business, which he co-founded with his Kepner-Tregoe colleague, Stephen Heiman. Miller Heiman Group became and remains one of the leading sales training organisations. The thinking that Miller and Heiman developed is massively influential in much sales training today.

However, Miller left the business in 1984, although he has had two extended periods of acting as a consultant and advisor to the business. As well as founding Value Sourcing Group in 1996, Miller also collaborated with Gary Williams to create a customer research consultancy, Miller-Williams Inc. There, they conducted the research we’ll be looking at.

Gary A Williams

Gary Williams  studied biology at the University of Alabama, and started his career in the late 1980s, in the software industry. He held a number of positions in both small entrepreneurial and large firms, including Glaxo and IBM. In the mid-1990’s, he was a Vice President of The Sentry Group, a consulting firm that was acquired by The Meta Group.

In 1998, Gary co-founded Miller-Williams Inc. with Robert Miller. This was a research firm dedicated to measuring how consumer behaviour affects market movements. Williams developed the analytical research method (for which he holds a US Patent).

Together, Miller and Williams also surveyed around 1,700 executives to learn how they make decisons. This research led to the book, 5 Paths to Persuasion, and the much reprinted Harvard Business Review article, Change the Way You Persuade.

In 2004, Miller left the business and Williams morphed it into its present-day incarnation, wRatings, which ranks business performance according to how well they serve their customers.

Paths to Persuasion

Miller and Williams surveyed 1,684 executives for their study. This is a reasonable sample size, but we must note a potential for cultural bias: 97% of the respondents were from the United States.

From their results, they divided the executives into five decision-making styles:

  1. Followers (36%)
  2. Charismatics (25%)
  3. Sceptics (19%)
  4. Thinkers (11%)
  5. Controllers (9%)

Note that Miller and Williams defined styles of decision-making. These are not the same as personality traits and they did no work on relating the two.

Whether you are trying to sell, negotiate, or just persuade to your point of view, you need to adapt to the other person’s decision-making style. You need to identify what it is, and then tailor your approach to fit. This gives Miller and Williams’ five paths to persuasion.

Followers

Followers like to make decisions based on what has worked before; either for them, or for other trusted colleagues. They are risk-adverse, but are prepared to take responsibility for their decisions when they make them.

They tend to be cautious and therefore like established ‘safe’ brands, but are also bargain-conscious. They like to feel innovative, but in reality prefer safety, with a slight edge of novelty. They trust expertise, track record, and in depth case studies.

To persuade these decision-makers, refer to proven methods and real results. Use references, case studies and testimonials to support your case. They need to feel certain they are making the right decision, so do what you can to reassure them that their choice is the safe one.

Charismatics

Charismatics love a new idea or proposal but will base their final decision on the evidence. Hook them with novelty, but expect a wholly rational analysis of the risks and rewards to drive their decision-making. When they take their decision, they will be prepared to accept risk and responsibility if the potential rewards are right.

Charismatics are enthusiastic, talkative, and dominant. They are results-oriented and able to focus hard for long periods.

So persuade them with a calm discussion of risks and potential results. Use simple and straightforward language, rather than trying to blind them with science. They often like visual aids like diagrams, maps, and graphs.

Sceptics

Sceptics tend to be suspicious of evidence, particularly if it conflicts with their established point of view. They can be aggressive and combative, and like to take charge. They are prepared to take risks, but will often try to shed responsibility if things don’t work out.

Ultimately, sceptics don’t trust data, they trust people. So you need to establish as much credibility as possible. A good way to do this is by gaining an endorsement from someone the sceptic trusts.

Thinkers

Thinkers are hard to persuade. They need rigorous arguments that are supported by solid data. They dislike risk and take their time to make as certain a decision as possible. Once they trust their analysis, they will commit to it. But they are also willing to re-evaluate it, if new data emerges.

Thinkers, as their label suggests, are cerebral, intelligent, and logical. They read widely, and are comfortable with numbers, processes, and proofs.

To persuade them, start with lots of data; the more the better. Include market research, customer surveys, and rigorous  cost-benefit analysis. Case studies can help. But they need to be in depth, with highly pertinent details and a significant statistical base. If not, the Thinker will brand it as merely anecdotal.

Controllers

Controllers are mercifully rare. They hate uncertainty and try to cast things in black and white polarities. Therefore, they like pure facts. They are also insecure, hiding behind an unemotional exterior, until they need someone to blame. They don’t like risk and don’t want to take responsibility.

Controllers are fairly logical, unemotional and detail oriented, but they also value action. Not surprisingly, from their label, Controllers like to be in charge.

Persuade them with care. They don’t like to feel manipulated, and they hate ambiguity. So you must demonstrate credibility and structure your evidence carefully. Never advocate too strongly for your proposal. It’s better to give the Controller the information, let them convince themselves.

Complicating Factors

This simple model belies the complexity of real people.

It can be hard to diagnose a decision-maker’s style. Many would mis-assess themselves. In their book, Miller and Williams give clues to help spot the decision style.
Additionally, many people have more than one decision style. They either blend aspects of two or more, or switch style, depending on the context. Finding their dominant style is not easy.

Robert Tannenbaum & Warren Schmidt: Leadership Continuum

Among many types of model of leadership is one that is particularly useful to practical day-to-day managers: situational leadership. And by far the best version of this idea was developed by two UCLA professors, Robert Tannenbaum and Warren Schmidt. Their 1958 article (reprinted in 1973) is one of the most reprinted from Harvard Business Review.

Robert Tannenbaum & Warren Schmidt

Robert Tannenbaum & Warren Schmidt

Robert Tannenbaum

Robert Tannenbaum was born in 1916, in Colorado. He studied at The University of Chicago, gaining an AB in Business Administration in 1937, and his MBA in 1938. The following year, he started his PhD in Industrial Relations also at Chicago, but his studies were interrupted by the war.

After serving as a Lieutenant in the US Navy, he returned to his PhD, which he defended in 1948. From there, he went to teach at the UCLA’s Anderson School of Management, where he remained until his retirement in 1977.

Warren H Schmidt

Warren Schmidt was born in 1920, in Detroit, and took a Bachelor’s degree in Journalism at Wayne State University. He then became ordained as a Lutheran minister.

He changed direction again, and after gaining his PhD in Psychology at Washington University, he went to teach at the University of Southern California and UCLA’s Anderson School of Management, where he met Tannenbaum.

By the by, Schmidt is the first of our Management Thinkers and Doers who has won an Oscar. In 1969, he wrote an Op Ed piece for the LA times, titled ‘Is it Always Right to be Right’. This was well received and turned into a short animated movie, narrated by Orson Welles. It won the Academy Award for Best Short Animated Film in 1970.

The Leadership Behaviours Continuum

In what is regarded as a classic 1958 Harvard Business Review article, ‘How to Choose a Leadership Pattern‘, Robert Tannenbaum and Warren H Schmidt set out a range of leadership behaviours.  They set out seven distinct stages on a continuum, which vary from telling team members their decision, through selling their idea and consulting on the problem, to handing over decision-making.

Tannenbaum & Schmidt - Leadership Behaviour Continuum

Tannenbaum & Schmidt – Leadership Behaviour Continuum
A range of behaviours from the purely authoritarian ‘Manager makes a decision and announces it’ through five intermediate styles, to the most democratic ‘Manager allows group to make a decision’ within appropriate constraints.

Equally valuable is their assessment of how a manager can decide how to lead and choose which of the styles will work best.  They argue you must consider three forces:

  • Forces in the manager
    Your values and style, and your assessment of the risk
  • Forces in the team-members
    Your assessment of their readiness and enthusiasm to assume responsibility
  • Forces in the situation
    Time pressure, the group’s effectiveness, organisational culture

This article is a foundation for what is now known as ‘Situational Leadership, and the two trademarked models developed by Paul Hersey and Kenneth Blanchard.

The Seven Leadership Behaviours

1. Manager makes the decision and announces it
This is a purely authoritarian style of leadership, with no consideration given to other points of view. Most appropriate in a crisis, the manager sets clear instructions and expectations.

2. Manager ‘sells’ their decision
The manager takes  the role of decision-maker but advocates their decision, appealing to  benefits to the group. Valuable when you need the group’s support.

3. Manager presents their decision and invites questions
The manager is still in control, but allows the group to explore the ideas to better understand the decision. The manager answers to their team, without committing to honour their opinions.

4. Manager presents a tentative decision, subject to change
Now the group’s opinions can count. The manager identifies and resolves the problem, but consults their team before making their own decision.

5. Manager presents the problem, gets suggestions and then makes a decision
Still the manager retains ultimate decision-making authority. But now, they share responsibility for finding the solution with the group, who can influence the final decision.

6. Manager defines the limits within which the group makes the decision
Now decision-making sits with the team. The manager defines the problem and sets boundaries within which the group can operate, which may constrain the final decision.

7. Manager allows group to make decision, subject to organisational constraints
The group has as much freedom as the manager is able to grant them. The manager may help the group and again, commits to respect the decision the group arrives at.

For More Information

This model is fully described, with analysis, in The Management Models Pocketbook.

 

GAC RIP 2/5/2010

Steven Levitt & Stephen Dubner: Freakonomics

Surfing Malcolm Gladwell’s wake on the wave of popular social science books came a pair of writers who set the stage for many journalist/social scientist combinations. Steven Levitt was a rising star in the world of economics when he was interviewed by successful journalist Stephen Dubner.

When the publishing world offered sufficient incentives (in the form of an author’s advance), they began their collaboration that has resulted in four books and over 5 million sales. More important, it opened our minds to the world of perverse incentives that the two dubbed ‘Freakonomics’.

Steven Levitt & Stephen Dubner

Steven Levitt & Stephen Dubner

Steven D Levitt

Steven Levitt is a successful academic. Born in New Orleans, in 1967, he studied economics at Harvard, graduating in 1989. He then spent a couple of years in management consulting, specialising in decision-making, before enrolling in a PhD programme at MIT.

His time at MIT was far from conventional. Whilst his peers did the standard thing of analysing case studies and studying theory, Levitt discerned a simple truth about academic life: success depends on published papers. So before even starting his formal thesis work, he was gathering and analysing his own data, conducting his own research, and writing his first papers.

His varied and curious approach to economics, and his succession of published papers, paid off. he was awarded his PhD in 1994 and, following a period as a research fellow at Harvard, was offered a post in arguably the most prestigious economics department in the US, at the University of Chicago. In just two years, he was made a professor.

He is now William Ogden Distinguished Service Professor of Economics and was, in 2003, the recipient of the John Bates Clark Medal. This is awarded every two years by the American Economic Association to the most promising US economist under the age of 40.

In the same year, a New York Times journalist interviewed Levitt for an extended article. That journalist was Stephen J Dubner.

Stephen J Dubner

Stephen Dubner was born in 1963 (AVGY), in New York, and started writing young. His first published work was in a children’s magazine . He studied at Appalachian State University in North Carolina. He graduated in 1984 and focused on a music career until he switched to writing in 1988 and enrolled in a Master of Fine Arts in Writing programme at Columbia University. After graduating in 1990, he taught in the English Department and started work as a journalist, becoming a story editor at The New York Times Magazine.

Dubner’s journalistic writing is highly regarded, and he has also written for Time, The New Yorker, and the Washington Post. In 2003, he interviewed a rising star among academic economists, called Steven Levitt.

The Spirit of Freakonomics

The thing about Freakonomics is that the book series, New York Times columns, and blogs range over a wide arena of social science and economics. What connects it all is the idea that, whilst everyone knows that people respond to incentives, research shows that some of our responses are surprising. So surprising, shocking, delightful, and curious, that the stories of what happens are compelling, and the unravelling of why it happens often reads like the most gripping of detective fiction.

The other vital aspect of the spirit of freakonomics is the combination of an academic economist’s eye for data and the story-telling capability of a seasoned journalist. These are held together by the glue of a shared sense of curiosity and delight in the phenomena that Levitt and Dubner explore.

The books make for a great read. They are thought-provoking and enhanced by Levitt’s analysis of large amounts of data. Indeed, the use of data is another theme. However, this is not to say that  Levitt and Dubner’s conclusions have gone unchallenged. With astonishing claims, like ‘abortion cuts crime’, come a welter of critique.

In some cases the critiques have hit home, in other cases, Levitt and Dubner have successfully countered them. What all of their writing is, is entertaining and thought-provoking. It is no wonder that their books have sold so well. And, on the margins, they also highlight some important truths that managers would do well to note:

  1. People respond to incentives.
  2. People’s response to incentives is not always what you would expect and is sometimes hard to understand.
  3. Big data sets can hold within them valuable and surprising conclusions. We can uncover useful insights and, equally, demolish cherished assumptions.
  4. Working with big data sets in the messy and complex world of human interactions is tricky. Separating coincidence from causation among correlated data is hard. And extracting data where many confounding variables are present will open you up to biting challenge.
  5. Socio-economic evidence should inform policy, but not dictate it.

The Freakonomics Library

Steven Levitt at TED

Steven Levitt has spoken twice at TED events, in 2004 and 2005.

Julia Galef: Scout Mindset

What the world needs now, more than anything else, is a greater degree of rationality. And Julia Galef is on a mission to help us get there.

Julia Galef

Julia Galef

Short Biography

Julia Galef was born in 1983, in Maryland. She studied statistics at Columbia University, graduating in 2005. Initially, Galef continued an academic career, starting an economics PhD course. However, it was not for her, and she moved to New York and began working as a freelance journalist.

There, she joined the New York Skeptics and, with philosopher Massimo Pigliucci started the podcast, Rationally Speaking, in 2010. In 2015, Pigliucci dropped out and Galef continues as the sole host.

In 2011, Galef moved to California to join a group of friends who had secured funding to start the Center for Applied Rationality. It began its work in 2012 and predominantly provides training in how to think more rationally. She is currently its president.

Hang on, Galef is a Public Intellectual…
What has that to do with Management?

Everything.

Management needs to be more rational. It isn’t that there is no place for intuition. It is, however, because intuition only serves us well in situations where we have deep experience.

And in a rapidly changing world where technology, commercial opportunities, and social policy are evolving at a phenomenal rate, none of your really crucial decisions can possibly be based on deep experience. Nobody has that.

So rational thinking is your best strategy for sound decision-making. And that means eliminating bias and exercising the techniques of good judgment.

Soldiers and Scouts: Galef’s Brilliant Metaphor

Galef has a great metaphor for understanding two mindsets, or ways of approaching reality. These mindsets manifest most clearly when we get into discussions or arguments in which we disagree with the other person’s analysis.

Soldier Mindset

A soldier needs to fight to survive. They are therefore trained to be defensive and combative. And by the nature of fighting forces, they are tribal too. The Soldier Mindset is therefore one of feeling safest when we are certain, and fighting against an opponent to protect ourselves. This may be defensive or offensive in nature, but there is value in being right and defending our position – even if it means attacking the other person.

Galef doesn’t say it, but I will. How familiar is this in modern western political discourse?

Scout Mindset

Scouts on the other hand are not tasked to fight, but to gather information. Facts, data and evidence are valuable to a scout, as is objective assessment of what they learn. Consequently, scouts are open to re-evaluate their evaluation, based on new information. The Scout Mindset is one of curiosity and a desire to cut through bias and prejudice to get at the truth. There is value for a scout in testing long-held assumptions and beliefs, so for them, there is no sense of losing face if they need to change their opinion.

Mindset, not Intelligence

This is not about intelligence, any more than Carol Dweck’s Fixed and Growth Mindsets are about intelligence. It is about how we address the complexities of the real world.

If what you value is the certainty of a simple analysis, and don’t want to let a few rogue facts spoil a good story, then you have a Soldier Mindset. And those facts will, eventually, spoil your story.

If, on the other hand, you recognise that the world is complex and the decisions you make are neither straightforward nor familiar, then you may feel you need to interrogate the data fully, listen to different perspectives, and draw careful but provisional conclusions. These will stand until conflicting evidence forces you to re-evaluate.

That is the Scout Mindset, and it sounds like the basis of grown up management to me.

Julia Galef at TED

Here is Galef speaking about the Soldier and Scout Mindsets at TED, in 2016.

Philip Tetlock: Expert Judgment

Philip Tetlock has done more than any other academic to help us understand the process of forecasting and making predictions. He has shown us why experts don’t do well, and, with his latest work, has found the secret sauce of ‘Superforecasting‘.

Philip Tetlock

Philip Tetlock

Short Biography

Philip Tetlock was born in 1954 and grew up in Toronto. He studied psychology, gaining his BA and MA at University of British Columbia, before moving to the US, to research decision-making for his PhD at Yale.

His career has been entirely academic, with posts at University of California, Berkley (Assistant Professor, 1979-1995), Ohio State University (Chair of Psychology and Political Science, 1996-2001), a return to UC Berkley (Chair at the Haas Business School, 2002-2011), and currently, he is Annenberg University Professor at the University of Pennsylvania, where he is jointly appointed between the School of Psychology, Political Science, and the Wharton Business School.

Tetlock’s early books are highly academic, but he started to come to prominence with the publication, in 2005, of ‘Expert Political Judgment: How Good Is It? How Can We Know?‘ This book has become highly influential, by documenting the results of Tetlock’s research into the forecasting and decision making of experts. The bottom line is that the more prominent the expert: the poorer their ability to forecast accurately.

Tetlock’s most recent book, 2015’s ‘Superforecasting: The Art and Science of Prediction‘ is one of those few magic books that can change your view of the world, make you smarter, make you feel wiser, and inspire you at the same time. It is co-written with journalist Dan Gardner (whose earlier books cover Tetlock’s work [Future Babble], and that of Daniel Kahneman [Risk]) and so is also highly readable.

The Tetlock Two-step

In ‘Expert Political Judgment‘, Tetlock is a pessimist. He finds substantial evidence to warn us not to accept the predictions of pundits and experts. They are rarely more accurate than a chimp with a dartboard (okay, he actually compares them to random guessing).

Ten years later, in ‘Superforecasting’, Tetlock is an optimist. He still rejects the predictions of experts, but he has found light at the end of the predictions tunnel. The people he calls ‘Superforecasters’ are good at prediction; far better than experts, far better than chance, and highly consistent too.

If you want to understand how to make accurate predictions and reliable decisions; you need to understand Tetlock’s work.

Hedgehogs and Foxes: The Failure of Experts

In a long series of thorough tests of forecasting ability, Tetlock discovered a startling truth. Experts rarely perform better than chance. Simple computer algorithms that extrapolate the status quo often outperformed them. The best human predictors were those with lesser narrow expertise and a broader base of knowledge. In particular, the higher the public profile of the expert, the poorer their performance as a forecaster.

This led Tetlock to borrow a metaphor from philosopher Isiah Berlin: The fox knows many things but the hedgehog knows one big thing. The experts are hedgehogs: they know one thing very well, but are often outsmarted by the generalists who recognise the limitations of their knowledge and therefore take a more nuanced view. This is often because experts create for themselves a big theory that they are then seduced into thinking will explain everything. Foxes don’t have a grand theory. So they synthesise many different points of view, and therefore see the strengths and weaknesses of each one, better than the hedgehogs.

One result of Tetlock’s work was that the US Government’s Intelligence Advanced Research Projects Activity (IARPA) set up a forecasting tournament. This is an ‘Intelligence Community’ think tank. Eventually, Tetlock moved from helping design and manage the tournament, to participating.

Superforecasting: The Triumph of Collective Reflection

Tetlock, along with his wife (University of Pennsylvania Psychology and Marketing Professor, Barbara Mellers) created and co-led the Good Judgment Project. This was a collaborative team that was able to win the IARPA tournament consistently.

The book, Superforecasting, documents what Tetlock learned about how to forecast well. He identified ‘Superforecasters’ as people who can consistently make better predictions than other pundits. Superforecasters think in a different way. They are more thoughtful, reflective, open-minded and intellectually humble. But despite their humility, they tend to be widely read, hard-working, and highly numerate.

In a recent (at time of writing – https://twitter.com/PTetlock/status/738667852568350720 – 3 jJune 2016) Tweet, Tetlock said of  Trump University’s ‘Talk Like a winner’ guidelines :

Guidelines for “talking like a winner” are roughly the direct opposite of those for thinking like a superforecaster

The other characteristics that enable superforecasting, which you can implement in your own organisation’s decision-making, are:

  1. Screen forecasters for high levels of open-mindedness, rationality and fluid intelligence (reasoning skills), and low levels of superstitious thinking (Tetlock has developed a ‘Rationality Quotient’ or RQ). Also choose people with a ‘Growth Mindset’ andGrit.
  2. Collect forecasters together to work as a team
  3. Aim to maximise diversity of experiences, backgrounds, and perspectives
  4. Train them in how to work as a team effectively
  5. Good questions get good answers, so focus early effort on framing the question well to reduce bias and increase precision
  6. Understand biases and how to counter them
  7. Embrace and acknowledge uncertainty
  8. Take a subtle approach and use high levels of precision in estimating probabilities of events
  9. Adopt multiple models, and compare the predictions each one offers to gain deeper insights
  10. Start to identify the best performers, and allocate higher weight to their estimates
  11. Reflect on outcomes and draw lessons to help revise your processes and update your forecasts

 

Tetlock Explaining Fox and Hedgehog Theory