williams thinking fast and slow

David WilliamsLange Consulting & Softwarewww.langeconsulting.com.au

KM Think TankTapping into Fast and Slow

Thinking

Dr Kate AndrewsKnowablewww.knowlable.com.au

KM Think Tank

Research, analysis and creative thinking on a topic for the good of the broader community

Objective

This workshop seeks to:1. introduce and compare the work by Malcolm

Gladwell (Blink, The Tipping Pont and Outliers) and Daniel Kahneman (Thinking Fast and Slow),

2. explore with the group how knowledge is used during rapid cognition, and

3. Generate ideas to improve the decision making process for ourselves and our organisations

How well does your organisations make decisions?

• Understanding?• Demand?• Champions?• Policy?• Procedures?• Tools?• Templates?• SMEs?

Malcolm Gladwell

• Staff writer with The New Yorker• One of Time Magazine's 100 Most Influential

People in 2005 • author of four books:

o The Tipping Point: How Little Things Make a Big Difference

o Blink: The Power of Thinking Without Thinking

o Outliers: The Story of Successo What the Dog Saw

Blink: The Power of Thinking Without Thinking• Rapid cognition, the kind of thinking that

happens in a blink of an eye. • Those instant conclusions that we reach are

really powerful and really important and, occasionally, really good.

• Not intuition – those emotional reactions, gut feelings, thoughts and impressions that don't seem entirely rational.

• When are snap judgments good and when are they not?

• What kinds of things can we do to make our powers of rapid cognition better?

Thin Slicing

Daniel Kahneman

• 1979 paper with Amos Tversky, on why we make "wrong" decisions.

• prospect theory of economic risk• how most real people, consistently, make a

less-rational choice.• Established the field of behavioural

economics• Awarded the Nobel Memorial prize in 2002

Prospect theory

People have an irrational tendency to be less willing to gamble with profits than with losses. This means selling quickly when we earn profits but not selling if we are running losses

Thinking, Fast and Slow

System 1 is fast, instinctive and emotionalSystem 2 is slower, more deliberative, and more logical

There are cognitive biases associated with each type

Gary A. Klein

o Ph.D. in Experimental Psychologyo Assistant Professor of Psychology at Oakland

Universityo Research psychologist for the U.S. Air Force o Senior Scientist at MacroCognition• Naturalistic Decision Making framework• Recognition-Primed Decision (RPD) making

Recognition-Primed Decision (RPD)

o Variation 1 - situation recognized as typical, acto Variation 2 - unknown situation, model

optionso Variation 3 - proper course of action unknown.

Conduct mental trial and error simulation and apply the first course of action which appears appropriate to the situation.

Thinking FastRapid Cognition ThinkingSystem 1 ThinkingNaturalistic decision making/Recognition Primed Decision

o Thinking with the subconscious o Uses Intuition and based on ‘patterns’o Multiple decisions, multiple inputs, multiple optionso Effortlesso Dynamico Fast o Processes automaticallyo Emotiveo Decisive o Can be primed or misled

Priming to influence rapid cognition

Thinking SlowSystem 2 thinking• Thinking with the conscious part of our brain• Uses logic and reasoning• One issue at a time• Requires effort and is tiring• Slow and deliberate• Follows rules and processes• Explores possibilities and probabilities• Less decisive• Invites compromise and is risk averse

Categories of decisionsSubconscious decisions System 1 decides

System 2 agrees

Anchored decisions System 1 sets the agendaSystem 2 thinks about it

Rational decisions No input from System 1System 2 is on its own

Cognitive dissonance Input from system 1 overruled

When can we trust System 1?

Successful rapid-cognition judgement involves pattern recognition. This requires:• an environment with sufficient statistical

regularity for patterns to exist; and • an opportunity to learn these regularities

through prolonged practiceIntuition is reliable in sports, medicine, firefighting, warfighting (complexity)Intuition is not reliable in the absence of stable regularities i.e. stock picking, political forecasts (chaos)

System 1 vs System 2

A bat and ball together $1.10

If the bat costs $1.00 more than the ball,how much does the ball cost?

Why Good Leaders Make Bad Decisions

• make decisions largely through unconscious pattern recognition and emotional tagging.

• can be distorted by self-interest, emotional attachments, or misleading memories.

Need to find systematic ways to recognize the sources of bias and then design safeguards that introduce more analysis, greater debate, or stronger governance.

Campbell and Whitehead

The Warren Harding Error:Why we fall for tall, dark handsome men

Why do we make bad decisions?

Bad Business Decisions

• IBM pays Microsoft a one-off fee to develop PC-DOS without the IP

• Western Union knocks back Bell’s telephone “What use could this company make of an electrical toy?”

• Decca reject the Beatles• Henry Ford refuses to update the Model T• Ross Perot knocks back an offer to buy Microsoft for

$40 million 1979• Wang tries to develop it’s own OS• NBC turns down the Cosby Show

Good Decisions

• Theodore Roosevelt funds digging of the Panama Canal

• Packer sells Channel 9 to Bond and buys it back for 300m less

• Gen. Attaturk converts Turkey to Greek alphabet

• Steve Jobs returns to Apple

Decision making in the Military

o Tactical

o Operational

o Strategic

Bad military strategic decisionso France invades Russiao Germany invades Russiao Japan bombs Pearl Harbouro Bay of Pigs Invasiono US invades Vietnamo Russia invades Afghanistano Argentina invades Falkland Islandso Iraq invades Kuwaito Gulf War 2 – US invades Iraqo NATO+ invades Afghanistan

Political

Decision theoryo a body of knowledge and related analytical techniques

designed to help a decision maker choose among a set of alternatives in light of their possible consequences.

o Decision theory can apply to conditions of certainty, risk, or uncertainty.

o Decisions under certainty, preferences are simulated by a scoring single-attribute or multi-attributes to rank the alternatives.

o Decisions for risk conditions is based on the concept of utility for given consequences and probabilities.

o Decisions under uncertainty can use game theory or simulation

Types Of Decision Making Environments (Decision theory)

o Type 1: Decision Making under Certainty. Decision maker know for sure (that is, with certainty) outcome or consequence of every decision alternative.

o Type 2: Decision Making under Uncertainty. Decision maker has no information at all about various outcomes or states of nature. o The Expected Payoff (ER) rule dictates that the action with the

highest expected payoff should be choseno The Expected Loss (EL) rule dictates that the action with the

smallest expected loss should be chosen

o Type 3: Decision Making under Risk. Decision maker has some knowledge regarding probability of occurrence of each outcome or state of nature.

Decision Support Toolso Affinity Charting o Analytical Hierarchy Process o Balanced Scorecard (Kaplan and Norton)o Benchmarking o Boston Plot (see also Product life cycle model below)o Brainstorming o Capabilities and Competences o Capability and Maturity - Hayes and Wheelwright's Four Stageso Cause and Effect Diagram, Fishbone, Ishikawa Diagram o Check Sheets and Check Lists o Clustering Processes o Conflict Analysis o Control Charts o Corporate Strategy o Cost / Benefit / Risk Analysis o Criteria Rating Form, Weighted Ranking o Critical Path Analysis (CPA, CPM)o Customer Surveys and Interviews o D - Fo Data Sources (including links to some www sources)o Decision Trees o Deming Cycle (Plan, do, check, act)o Deming's 14 points o Drawing Packages o Finite Capacity Scheduling o Flexibility Framework o Flow Charts o Force field Analysis o From/to Chart o G - Io Gap Analysis o Graphs, Gantt, Histograms and Bar charts o Hewlett-Packard Return Map o Histogram or Bar Graph o Importance / Performance Matrix o Innovation Funnel o J - Lo JIT (Just-In-Time)o Kanban o M - Oo Manufacturing Decision Areas

o Manufacturing Resource Planning (MRPII)o Marketing, 4Ps of o Materials Requirements Planning (MRP)o Matrices o Matrix 2x2 o Media for Communication o Mintzberg's 5 Ps for Strategy o P - Ro Pareto Principle o Polar charts, Radar charts o Porter's 5 Forces o Porter's Generic Competitive Strategies (ways of competing)o Porter's Value Chain o 4 Ps of marketing o Product Life Cycle (See Boston Plot above)o Programme Evaluation and Review Technique (PERT)o Quality Framework o Quality Function Deployment (QFD) o Quality Organisations and awards o Quality, Time, Cost & Flexibility o Quality - TQM Tools o Quantitative Decision Making o Robustness Analysis o S - Uo Sensitivity Analysis o Scatter Plots o Strategic Options Development and Analysis (SODA)o Soft Systems Methodology o Spreadsheets and databases o Statistical Process Control o Statistical Software o Strategic Assessment Model o Strategic Assumptions Surfacing and Testing o Strategic Choice Approach o SWOT (Strengths, Weaknesses, Opportunities, Threats)o Time Framework o TQM (Total Quality Management) Tools o Trade-off Models o V - Zo Value Chain (Porter's) o Vroom's expectancy theory

RPD V1

RPD V2RPD V3

Decision Making under Risk

Decision Making under Uncertainty

Decision Making under CertaintySingle Attribute

Decision Making under CertaintyMultiple Attribute

Gut feeling / instinct

Game theory

Compare

Analyze

How the decision models overlay on the Cynefin model

Type 1 decision making

Type 2 decision making

Initial observations

o Never go against your gut instincto Reflect on what is driving your decisionso Look outside the box to expand your optionso Never let generalists (or politicians) make

rapid-cognition decisions in areas where they are not experts

Activity

What are the barriers to good decision making?

What environmental conditions would be conducive to good decision making?

What are the attributes of a good decision maker? Using Organisational Zoo Cards

What enablers could be put in place to enhance good decision making?

Should decision making fit into a KM framework?

Where to from here?Collaborative creation of a paper on how to make good decisions?

Bibliography• Daniel Kahneman http://www.princeton.edu/~kahneman/index.html• Malcolm Gladwell http://www.gladwell.com/bio.html• Gary Klein http://en.wikipedia.org/wiki/Gary_A._Klein• Decision Theory http://pespmc1.vub.ac.be/ASC/DECISI_THEOR.html• Modelling and Decision Support Tools

http://www2.ifm.eng.cam.ac.uk/dstools/• Why Good Leaders Make Bad Decisions by Andrew Campbell, Jo Whitehead,

http://hbr.org/2009/02/why-good-leaders-make-bad-decisions/ar/1• Two system Thinking http://

timreidpartnership.com/Site/An_introduction_to_2_system_thinking.html• The Power of Intuition: How to Use Your Gut Feelings to Make Better

Decisions at Work by Gary Klein http://www.amazon.com/s?search-alias=stripbooks&field-isbn=0385502893

• Sources of Power: How People Make Decisions by Gary Klein http://www.amazon.com/Sources-Power-People-Make-Decisions/dp/0262611465/ref=pd_rhf_se_p_t_1