Friday, September 23, 2011

Thinking about thinking

Psychologist Daniel Kahneman has a book coming out in November. Thinking, fast and slow. It's all about mental heuristics and the two different functional levels of the brain -- the fast instinctive part which is effortless but prone to errors and the slow rational part which takes effort to use but which can (in some cases) correct some of the errors of the first part. His Nobel Prize Lecture from 2002 is a fascinating read so I'm looking forward to the book.

But meanwhile, has some videos and text of a series of very informal talks Kahneman recently gave. These give some fascinating insight into the origins some of his thinking on decision theory, prospect theory (why we value gains and losses relative to our own current position, rather than judge outcomes in terms of total wealth), why corporations make bad decisions and don't work too hard to improve their ability to make better ones, and so on. Here's one nice example of many:

The question I'd like to raise is something that I'm deeply curious about, which is what should organizations do to improve the quality of their decision-making? And I'll tell you what it looks like, from my point of view.

I have never tried very hard, but I am in a way surprised by the ambivalence about it that you encounter in organizations. My sense is that by and large there isn't a huge wish to improve decision-making—there is a lot of talk about doing so, but it is a topic that is considered dangerous by the people in the organization and by the leadership of the organization. I'll give you a couple of examples. I taught a seminar to the top executives of a very large corporation that I cannot name and asked them, would you invest one percent of your annual profits into improving your decision-making? They looked at me as if I was crazy; it was too much.

I'll give you another example. There is an intelligence agency, and the CIA, and a lot of activity, and there are academics involved, and there is a CIA university. I was approached by someone there who said, will you come and help us out, we need help to improve our analysis. I said, I will come, but on one condition, and I know it will not be met. The condition is: if you can get a workshop where you get one of the ten top people in the organization to spend an entire day, I will come. If you can't, I won't. I never heard from them again.

What you can do is have them organize a conference where some really important people will come for three-quarters of an hour and give a talk about how important it is to improve the analysis. But when it comes to, are you willing to invest time in doing this, the seriousness just vanishes. That's been my experience, and I'm puzzled by it.


  1. Given the current fascination with Dalio, I wonder if investment organizations can see past how they do things to embrace different ways of making decisions.

    As someone who writes and consults on these topics, I know how hard it can be to get them to do so.

  2. My question is whether it might be due to incentives.

    Those high up in the organization have already "won" based on the current state of affairs - changing it would more likely hurt their position than help it at this point, since better decision making may expose poor prior ones that bring into question the legitimacy of their status and control.

  3. Reminds me of Russell Ackoff...

    BBC audio interview from 2010 (starts ~1:30 in).

  4. What is interesting here is that Kahneman is insisting on real change and that is a radical idea.

    Most big organizations tend to have different rules for those at the top; Intel famously had (or still has) top execs in cubicles, just like everyone else, but they are an exception. Another exception is ATT which has a cultural meme of asking employees to look for and workaround their cognitive blindspots (I first heard this idea at a BellCore conference in the early 1990s, and saw it again while consulting to them recently.)

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