Monday, November 25, 2013

Thinking Fast and Slow Observations

     I just finished reading "Thinking Fast and Slow" by Kahneman.  My Phd was in behavioral economics and it was great to get a refresher from the master.  Given my now 13 years in business, I got to read the book with a different eye; one where I could think about common pathologies I have noticed in business decision making but brought back to first principles.  I highly recommend the book.  Some random observations: 

1.  If you have a choice between a for sure likelihood of a bad outcome if you stop a project or a small probability of a good outcome but a small likelihood of a disaster, take the bad outcome. You can explain a bad outcome.  It is much harder to explain that you decided to choose to go down a path that had a high probability of disaster.

2.  If you see a structural impediment to accomplishing a goal, don’t proceed.  See if you can fix it.  If not, do something else. It is really hard to overcome a structural governor on change.

3.  Take a look at the historical ability of a person, partner or team to do something.  If the historical probability is low, do something else.

4.  Organizational change is hard because someone always loses.  And the change hurts the losers more than helps the winners.  So the losers fight harder.

5.  Experts do a good job of figuring out the important drivers of some phenomena.  But we are not good at using those mental models in a consistent way, in the moment of making a decision.  Algorithms are much better at getting to good results.  Even imperfect algorithms.  Think about this in the context of hiring, or forecasting, or evaluations, or capital budgeting or ... 

6.  Don’t just evaluate one alternative.  Always put two down, even if the other one is do nothing.  I like to see if, when something is framed as a positive ("we are giving you a gift") I can reframe as a negative ("You are creating an obligation")

7.  People conflate liking with smart.  In a hiring context, managers wind up hiring nice people who they think are smart.  Not actual smart people.  As organizations get bigger, you wind up with a more likable, but less smart organization.  Next thing you know, you have a large group of people who have a limited skillset and can't adapt to change.



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