What’s the Best Way to Make Careful Decisions?

Original Article

In his book Blink, discussed in this column in February 2005, Malcolm Gladwell advised us to place faith in intuition based on experience in deciding many things quickly. Now Michael Mauboussin, with his book Think Twice, makes the case for a more careful approach, suggesting that we place too much emphasis on intuition and personal experience as opposed to the "wisdom of crowds," mathematical models, and systematically-collected data. He argues that "blink" serves us well in stable environments where feedback from previous decisions is clear and where cause-and-effect relationships can be identified. Unfortunately, in his view these conditions are more and more rare. As he puts it, "intuition is losing relevance in an increasingly complex world … more is different." You ask, what's new here? Perhaps these sound like "dog bites man" assertions.

I'll risk oversimplifying a complex set of arguments this way: Mauboussin, citing a wide range of examples and research, argues that we use experts (as opposed to diverse "crowds") too frequently, that we too often fail to: identify the nature of the problem, match solution techniques with problems, seek diversity in our feedback, and use technology where possible.

Among other things, he argues, we ignore the subtle and ignored biases that our experiences impose on our independence as decision-makers, we decide too frequently on our emotional reactions to risk (playing the lottery even when we know better, for example), and we succumb to pressures to follow the group. As decision-makers, we are products of our environment to a greater degree than we realize. We take credit for things out of our control while blaming others for failure in similarly uncontrollable circumstances. We hire "stars," only to watch them burn out in a new and different managerial environment. We look for "best practice" (à la Jim Collins in Good to Great and others) in highly complex situations where there is little comparability and therefore no best practice, only "it all depends." Worse yet, we are often not conscious of these influences.

Mauboussin maintains that we too often underestimate the importance of luck in the outcomes of our decisions, employing Nobel Prize-winner Daniel Kahneman's observation that success requires some talent and some luck, while great success requires some talent and a lot of luck. The importance of this observation is that systems that involve significant amounts of luck, such as investing for many people, revert to the mean for the group over time, a fact that can be used to make better decisions without the influences described above. It's why, for example, some successful investors simply choose stocks of the bottom companies in the Dow Jones average in the preceding year in making their investments for the coming year.

Is intuition losing its relevance in an increasingly complex world? Will we need to turn increasingly to such things as quantitative models, "prediction markets" (where people bet on their views), the wisdom of crowds, and even such things as models based on "system dynamics" developed at MIT in the 1960s? And should we rely less on so-called "experts" and "stars"? In short, should we be spending more time examining our true decision-making abilities and the things that influence our results, i.e., more time "thinking twice" than "blinking"? What do you think?

To read more:

Michael J. Mauboussin, Think Twice: Harnessing the Power of Counterintuition, (Boston: HBS Press, 2009)