Archive for February, 2014

Changing your mind can be harder than you realise

Wednesday, February 26th, 2014

I don’t if you are aware of the work of Prof Daniel Kahneman, whose work earned him a Nobel prize for economics.  He realised that the way we think is far less rationale than we might wish.  We have two ‘thinking  modes’ which he named System 1 and System 2.  One is the rationale, slow deduction reasoning, the other is much faster and habit based.  It relies on previous decisions and experiences, preconceptions and biases, such as the desire not to be wrong. 

Kahneman realised that we respond very differently to losses than to gains. We feel the pain of a loss much more than we feel the pleasure of a gain. He even worked out by how much. If you lose £10 today, you will feel the pain of the loss. But if you find some money tomorrow, you will have to find more than £20 to make up for the loss of £10. This is loss aversion, and its cumulative effect can be catastrophic.

Dr Laurie Santos wanted to see how deep rooted this bias was and  so studied the behaviour in monkeys.  They were able to create a system of risk & rewards which, in effect, introduced them to the concept of money.  The monkeys were taught they could exchange a silver token for grapes.  They were then offered a series of choices some of which resulted in ‘losses’ and some in ‘gains’, and the news is that monkeys exhibit the same patterns as we do when it comes to gambling.  So with the thinking patterns so deeply engrained our chances of changing them are small.

We are very good at justifying our decisions after the event and presenting them as the being the result of logical processes but all to often they come from lazy thinking, reactions and deep biases.  I wonder if the US would have required more proof of Sadam’s weapons of mass destruction if they hadn’t just suffered the ‘loss’ that 9/11 represented to their psyche?

If we can become a little more aware of how we think and come to our decisions then at least we have some chance to avoid some of these evolutionary pitfalls.

 

    Resources:

  1. Horizon “How we really make decisions”

Floods and other disasters

Tuesday, February 18th, 2014

You have probably heard that Southern England has had a difficult time of it for the last few months with much of the country under water for weeks.  Guildford was flooded and my son has to wade to work.  However, we have been lucky and have had nothing more than 4 days without power to contend with.  However, many businesses and a families have had much, much worse to contend with.

In life, and in business you can be merrily carrying on as normal when something happens that demands you do something different.  Something that you can not ignore.  This kind of change is always unwelcome and usually finds us unprepared.  However, many events are predictable, and if you are slow in responding because the market around you is changing, then don’t be surprised if you are left high and dry.  No one likes change, but the wise man prepares and adapts.  PW Botha said “Adapt or die” and the world applauded him as a brave man.  Many of us would sooner focus on something familiar and hope the uncomfortable new threat just goes away.

For example, two big firms merge.  They change the headed paper, some of them change their systems and maybe move their desks to a new location but how often is this the limit of their vision, just doing the bare minimum.  All those people who need to answer the question, who are we now?  What do we stand for?  Why are we unique?  How do we take advantage of this to make ourselves better and better able to compete.  It isn’t simply about scale, but more about a chance to change the culture, and it is mostly wasted.

Don’t be caught out.  Start looking at your business and seeing where you need to make changes.

“The measure of intelligence is the ability to change.”  Albert Einstein

I believe we are today crossing the Rubicon, Mr Chairman. In South Africa there can be no turning back. I have a manifesto for the future of our country and we must engage in positive action in the months and years that lie ahead.”  PW Botha