The Leadership Moment

Very good talk by Mike Useem on the decision making difference. His book (The Leadership Moment) influenced me a lot when I first read it many years ago:

Excellent pocket reference

Cognitive Biases - A Visual Study Guide by the Royal Society of Account Planning

All that glitters

With current volatility and market confusion, one can find data points supporting arguments for both deflation and inflation up ahead. My current view: Given helicopter Ben being a student of the Great Depression and not being hampered by a gold standard, coupled with quantitative easing (printing), the probability of deflation is close to zero, with inflation being the big risk.

Ok, so perhaps that is obvious, but less obvious is whether gold is an appropriate inflation hedge today. Regardless of what turns out to be correct, this is a topical context with which to test argumentation, reasoning and decision making, and what better way than to have two heavyweights in the ring.

First up a Wall Street Journal article: (read it here)

Then the iTulip rebuttal: (read it here)

We live in interesting times!

Expertitis

Just about every human decision about the future is tainted by a gap — the difference between what we think we know and what we actually know. The more expert we are, the wider the gap is likely to be. — Nassim Nicholas Taleb

In an earlier post in 2007 I stated: "To keep perspective I try remember that professionals built the "unsinkable" Titanic, while amateurs supposedly built the arc." OK, so there was no arc, but it's a useful analogy to keep in mind to be weary of experts.

The "quants" have taken an intellectual hammering during this financial crisis, and rightly so. Many were running models with data set of less than 10 years coupled with flawed assumptions that distributions are always Gaussian!

Here is a classic summary of a series of experiments proving the dangers of expertitis: http://www.strategy-business.com/enews/enewsarticle/ac00001

A Million Words

If a picture is worth a thousand words, imagine the power of a visual mapping argumentation methodology. The result: cheaper, better and faster outcomes.

While evaluating tools and methodologies, (I will write about Austhink's Rationale in a future post), I came across this visual map from Robert Horn at Stanford on whether to deploy a National Missile Defense system: http://www.stanford.edu/~rhorn/a/policy/NMD/NMD.v7.pdf

Content quality aside, imagine the comparing the effectiveness of this diagram with the traditional essay format, in communicating the arguments, scope and completeness of what exists in a single page.

Q.E.D.

Corporate decision making

A recent McKinsey survey titled "How companies make good decisions" concluded with the suggested improvement of: "Put organisational goals ahead of business unit goals, and encourage efforts to build consensus between business units".

In many companies where compensation is primarily business unit centric, expecting execution on the above would probably be a bridge too far.

No real surprises though: Better collaboration, methodologies, financial and risk modeling up front, yield higher probabilities of desired results. Another McKinsey article on corporate decision making can be found here.

In praise of scientific method

Here is a great example of clear thinking. (I've had an earlier post on this topic too: here)


part 2, part 3, part 4, part 5, part 6.

"You come to school to learn!"

I recall this mantra being drummed into us at primary school. Teacher after teacher, as if they were part of some cult.

A while later, a maverick teacher tried to correct this: "No, you don't come to school to learn; You come to school to learn HOW to learn" he preached. That perspective influenced me.

IBM, as part of their e-learning research, found that about half the learning by students is done from other students, the questions they ask, and the water cooler conversations they have. Yet the education system seems to resist change as this Wharton article suggests: http://knowledge.wharton.upenn.edu/articlepdf/2032.pdf

Decades on, my current view is that an improved purpose is to learn how to think. There is so much raw data out there, generated at an accelerating pace, that learning it becomes impossible. The best we can hope for is to learn generic tool sets and methodologies (themselves open to improvement) in order to develop a robust decision making process, which will allow us to deal with infinite data and changes as the situation requires.

By way of deception, thou shalt wage war...

With the plethora of news sources available today, you'd think that there would be a bit more critical thinking taking place.
Interesting, yet sad zeitgeist.

Source: Economist

Voo Doo Medicine - Degeneration of a Nation?

"Australians are turning in droves to alternative therapies - there has been a 51 per cent increase in the number of people visiting complementary health professionals in the 10 years to 2005." (Sydney Morning Herald)

You would think that our rising education (coupled with unbelievable advertainment) would be creating a nation of skeptics.

Evidently not.

But what about the placebo effect? Surely it's better to take a drop of salt water (homeopathic remedy) that can do NO harm, as opposed to a drug that COULD harm?

Firstly, we are not just taking a substance willy nilly. We are trying to correct a problem or improve a state. (and research has show the inconsistencies between gain vs loss decision making)

Secondly, placebo effects are not confined to alternative medicine alone. They're everywhere.

Finally, surely it's better to keep our cash, (optional: do a free voo doo dance to activate the placebo effect if we must...) and only consider scientifically proven prescription drugs if we really really think the placebo is not delivering the results?

But, I hear you say, implicit in the definition of "placebo" is the BELIEF that it will work. So we would somehow need to fool ourselves that our voo doo dance will work.

Yes. I see your point.
And somehow, paying to fool ourselves makes it easier?

The Wealth of Knowledge

I just came across a video overview/pitch on Sway - a book on irrational behaviour. (watch it here)

My favourite book of all time on the topic, remains Scott Plous's book: The psychology of judgement and decision making.

Happy reading.

If the professionals couldn't see it...

In 1898, delegates from across the globe gathered in New York City for the world’s first international urban planning conference. One topic dominated the discussion. It was not housing, land use, economic development, or infrastructure. The delegates were driven to desperation by horse manure.
[...]
The situation seemed dire. In 1894, the Times of London estimated that by 1950 every street in the city would be buried nine feet deep in horse manure. One New York prognosticator of the 1890s concluded that by 1930 the horse droppings would rise to Manhattan’s third-story windows. A public health and sanitation crisis of almost unimaginable dimensions loomed.

And no possible solution could be devised. After all, the horse had been the dominant mode of transportation for thousands of years. Horses were absolutely essential for the functioning of the nineteenth-century city -- for personal transportation, freight haulage, and even mechanical power. Without horses, cities would quite literally starve.

All efforts to mitigate the problem were proving woefully inadequate. Stumped by the crisis, the urban planning conference declared its work fruitless and broke up in three days instead of the scheduled ten.
Source: Eric Morris: “From horse power to horsepower”

Hmmm.... sounds similar to the current climate change prognostications. (we should be so lucky that some wonder-technology swoops in to save the planet)

Yet I found the urban planning conference date interesting, so I looked it up.

Karl Benz built and tested the world's first car in 1886 (powered by an internal combustion engine)

That's a full decade before our experts gave up on the problem!

How many other "solutions" (and yes, note the irony with climate change) are sitting in front of our noses?

Conspiracy

Ironically, the lack of appropriate thinking by many conspiracy theory creators and supporters, enables more deceptions to take place than would otherwise be possible. Busted covert operations only adds fuel to the many fantasies out there. It thus becomes easier to avoid the fewer exposed truths by dismissing them (like many fantasies) with the same goofball conspiracy theory label.

Take the Apollo moon landings. The alleged conspiracy is based on a number of data points, including:

• There are no stars in the backgrounds of pictures taken on the lunar surface
• There's no dust on the lunar module's footpads
• Shadows are pointing in different directions
• The flag is fluttering in no atmosphere
• Camera cross hairs on lunar surface pictures sometimes appear behind objects

These indisputable facts, without analysis, could lead some to conclude that the moon landings were a hoax. Yet any basic analysis would yield plausible explanations for each fact. (see here)

That's not to say that refuting the above claims alone, proves that the moon landings did happen - just that these claims are not proof that the landings were a hoax. Often confused, there is a profound difference, between these two conclusions.

The lesson for us is to not jump to conclusions, verify information, look for alternative explanations, ask disconfirming questions and keep an open, critical mind.

Professional Overconfidence

“A severe depression like that of 1920-21 is outside the range of probability” - Harvard Economic Society, Nov 16, 1929

To keep perspective I try remember that professionals built the "unsinkable" Titanic, while amateurs supposedly built the arc.

Voltaire's Judiciary

As Al Gore was winning the Nobel Peace prize, a UK Judge ruled that An Inconvenient Truth contained claims based on 9 scientific errors, making it a political statement and thus unfit for inclusion in the UK school syllabus.

In an earlier post, I challenged one of these claims. Another claim is Kilimanjaro's shrinking ice cap, which in the movie, was also blamed on global warming. Yet temperature data from weather stations show lower temperatures for the region (and lower humidity). This suggests another cause for the shrinking ice cap. A plausible cause is deforrestation and the resultant lower humidity in the region. [Ed: think frost free freezers]

Coming back to the judge though, if identical principles were applied, what chance would religeous instruction have in being taught at school?

Perhaps we are not ready to go there though. As Voltaire said: "It's dangerous to be right, when the government is wrong" [Ed: ...or the masses are wrong. (sorry, couldn't resist ;-)