Dan Kahneman Puzzles With Us

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.

That is from an Edge interview.  We see a related disinterest in better decisions via decision markets.  Hat Tip Hamish Barney.

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  • http://michaelkenny.blogspot.com Mike Kenny

    I wonder if the aversion to advancing decision-making skills has to do with not wanting to take on more responsibility and expend more energy in deciding. “If I know more about probability, I’ll have to expend more energy in deciding generally, looking at more data and crunching numbers. I don’t want to, and I don’t seem to need to. I do okay as is.” Satisficing rather than optimizing I suppose. If you don’t know how to drive a car, your friends never ask you to do so, saving you inconveniences, and you might feel you reduce your chances of being blamed for inaction in cases when driving could have helped outcomes, because you didn’t know how to drive.

    Why competitive pressures wouldn’t punish such an outlook is not clear, and suggests this outlook doesn’t exist, or, if it exists, is deeply set in people.

    Another possibility, that doesn’t seem to square with the above theory: people don’t want their hopes dashed by better decision-making skills. They want a level of ignorance so they can sustain an hopeful effort. If they know results aren’t probable, they will be less likely to act excitedly, to be less energetic in pursuing their unlikely ends, and therefor they may reduce the likelihood of those ends being realized. Perhaps people would be happier trying for improbable ends–a sort of gambling–rather than engaging in many sensible, unexciting enterprises. Perhaps when we look at lottery players irrationality, we discount the pleasure of gambling itself.

  • Constant

    I taught a seminar to the top executives

    So let me get this straight. He approached winners of the game, and proposed changing the rules of the game. He approached the elite decisionmakers, the very highly paid top dogs of the current system of decisionmaking, and proposed changing the system. And they were not enthusiastic. Gee, I wonder why.

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Constant, top execs could easily want other execs at their firm to make better decisions.

  • Constant

    Robin, of course, but reforms have a way of leaking. Ask the Soviet state. On wait, there is no more Soviet state.

  • CWurden

    …. “When the bosses talk about improving productivity, they are never talking about themselves.”

    Hardly surprising. Senior managers are individuals first — and humans always pursue their own self-interest, as they perceive it.

    Gaining good pay/perks, comfortable work environment, good reputation, etc…. are strong motivators for change/improvement at lower levels of the corporate/business food chain — but fade at the top levels where they are taken for granted. Plush retirement benefits & golden-parachutes are more attractive goals. Established bureaucratic organizations do not reward boat-rockers.

    If a corporate leader has achieved a comfortable level of success within the status quo — why risk loss of that known personal comfort for merely the possibility of benefit to ‘other’ people ?
    Why do management fads (..like TQM) come & go so easily… without effect ?

    Robert Michel’s famous “Iron Law of Oligarchy” and Lord Acton’s “Power Corrupts” embody the same basic principle — self-interest dominates organizational leadership, unless held in check by external forces.

    You see it everywhere, from local schools & churches… to General Motors… to any level of government.

  • http://bizop.ca michael webster

    A friend of mine and I were talking about something similar at lunch. He works for a very large accounting firm, but we both have similar academic backgrounds – philosophy doctorates.

    He sees idiotic decision making all the time; something I call story-telling decision making. Not so much as making decisions as telling comforting stories about what has already happened.

    He related an interesting observation. When he first joined the Firm, he routinely called out the Emperors on their choice of clothing. Bad career move. He learned the false consciouness that the non-elite practised: pay attention only to those decisions which look like a boatful of money have been poured into them. Ignore but do not engage other decisions.

    It makes me wonder how a group of us ever go to the moon. We did go didn’t we?

  • http://profile.typekey.com/robinhanson/ Robin Hanson

    Michael, it would be interesting to hear that story with a lot more detail.

  • anon

    You’ll never hear those stories Robin. I work in that industry. Those stories always raise questions about why the teller did not quit to avoid criminal or civil liability.

  • http://profile.typekey.com/jhertzli/ Joseph Hertzlinger

    Kahneman said, “Would you invest one percent of your annual profits into improving your decision-making?” The executives heard, “Would you send people like me one percent of your profits? In return, we will produce an incomprehensible report whose only understandable conclusion is to send more money the following year.” It’s possible to sound like a con-man even while honest.

  • Doug S.

    You’re forgetting Putt’s Law of Decision Making.

    “Decisions are justified by considering benefits to the company. Decisions are made by considering benefits to the decision makers.”

    A better decision making process just might reveal that the company is being run by morons. And, thanks to the Peter Principle and the Dilbert Principle, anyone who isn’t a moron will be systematically excluded from the highest levels of the hierarchy. A competent person will either be promoted to his level of incompetance or become irreplaceable get stuck in his current position forever. If everyone is running around nude in the dark, the guy who wants to turn on the lights is more likely to get fired than promoted.

    Everyone who wants to understand human decision making needs to go read the book “Putt’s Law and the Successful Technocrat.”

  • http://www.zianet.com/ehusman/weblog/blogger.html Eric H

    Michael said

    pay attention only to those decisions which look like a boatful of money have been poured into them. Ignore but do not engage other decisions. It makes me wonder how a group of us ever go to the moon.

    Today’s NASA could not duplicate the feat, if you believe Howard Scwharz’ Narcissistic Process and Corporate Decay : The Theory of the Organizational Ideal. As he describes it (broad paraphrase), NASA has fallen into a state in which they believe the power of their own decision-making capability because they (NASA) made the decisions, and NASA’s decision-making capability is well known (if that seems tautological, well, that’s because you aren’t a member of the NASA team). The problem of discussing large problems in such a culture is so insurmountable that it gives rise to the “Color of the bikeshed” problem in which people will ignore large issues because they assume someone else is working those (everyone else assumes so, too), but everyone will weigh in with an opinion on what color the bikeshed should be painted.

    That seems to be the opposite of the situation you are describing (ignore the trivial, pay attention to the massive). I wonder if the two can be reconciled, or usefully differentiated? In other words, are they related, opposite sides of the same coin, or organization type A is like NASA and B is like yours (so what are A and B)?

  • http://www.zianet.com/ehusman/weblog/blogger.html Eric H

    Ooops, take the
    off the first link above and it should work.

  • Shakespeare’s Fool

    Kahneman wonders that businesses do not use his
    methods to improve their decision making.

    Thenthere is this at the link:

    ‘Paul Krugman, in his New York Times column,
    “Quagmire Of The Vanities” (January 8, 2007), asks
    if the proponents of the “surge” in Iraq are cynical
    or delusional. He presents Kahneman’s view that
    “the administration’s unwillingness to face reality in
    Iraq reflects a basic human aversion to cutting
    one’s losses—the same instinct that makes
    gamblers stay at the table, hoping to break even.”

    If Kahneman is so certain about what is unknowable
    why would anyone believe his methods will improve
    their decision making? If comment like this creep
    into his discussions, he is likely to become as easy
    to dismiss as Rumsfeld after his comments about
    their having been no guerrilla warfare against
    American troops in Iraq.

    Now, Kahneman’s defenders will say that Rumsfeld
    was demonstrably wrong and Kahneman may yet be
    proven correct. And they would be right to do that
    if the question were the accuracy of Rumsfeld and
    Kahneman. But making absolutist statements about
    what might (or might not) come to pass, is unlikely
    to impress people who must make practical
    decisions.

    John

  • Shakespeare’s Fool

    Robin Hanson said, “Constant, top execs could
    easily want other execs at their firm to make better
    decisions.”

    But, Robin, the other execs are now
    following the very successful directions of
    the top executives. The top executives will
    fear the company will become less
    successful if any change leads the other
    execs to stop following their directions.

    John