Thanks Mark – I only meant that the sub-prime mortgage nonsense was entirely contrary to any notion of credit scoring, rather than the whole financial crisis. That was, though, a major component – can't remember how many billions of toxic debt lay in that particular segment, but recall it was quite a lot.
I perhaps read more than you meant into the quote "Reason is the worst possible guide to human affairs. ... Instinct and prejudice are much better guides." I see you went on to advocate practice and experience, which I guess is a less formal version of developing reliable procedures.
It certainly looks, as you say, like much of the rest of the trouble was down to mathematical models that didn't work – but that's not professional either .. an engineer or doctor with a new theoretically persuasive way of doing something tests it out carefully – on a very small scale and widely differing circumstances - before launching it on an unsuspecting world, and if it's too large or complex to test in practice, they stress-test it in simulated extreme conditions. It rather looks [though it's not a world I know at all] like the banking whizz-kids failed in this fundamental responsibility.
The discussion raises one other question for me – much of the post-crisis debate has focused on the alleged questionable ethics of senior management, and the failure of governance systems. I don't know what others' experience has been, but it is not my impression that senior managers are generally without scruples or ethics. Most seem to be well-meaning people genuinely trying to do their best. But if they are not equipped with reliable ways of assessing what 'best' is, they will likely continue to make mistakes. And as for governance – if those supervisors also do not know what 'best' looks like, how are they going to know when to blow the whistle and stop the most hot-headed executives?
Best wishes - Kim
Kim,
Interestingly I agree with most of what you have written (up to a point). Nothing I am arguing is antithetical to the notion that we can develop systematic approaches to decision-making (where the problems are well structured at least).. (I would though disagree with your characterisation of the recent financial crisis as consequent on intuitive decision-making rather than credit scoring systems.) The credit crunch rather came about on the back of a highly scientific approach to risk valuation. Unfortunately the maths turned out to based on some poor assumptions.
Of course not all intuitions are as valuable as others. Would I trust the intuition of a medical student about a diagnosis? – Probably not. I might put greater reliance on the intuitive clinical judgement of a consultant who has many years of expertise in the field though. The examples you give are of well bounded fields where we can apply known rules in a known context. However, most professionals need to extemporise in ill structured situations , reasoning by analogy and drawing on experience over many thousands of experienced situations. In such circumstances, the rules only take you so far.
The mathematical modelling of financial risk is an interesting case in point. It is a good example of how we are easily misled by a 'method' into believing it is a good description of the world when it is only a 'good enough' model of the world so long as the future continues to behave much like the past. Intuition is of course no panacea – it suffers from exactly the same problems as conscious model based analysis – the tendency to apply prior experience (or models based on prior experience of many people) in contexts where it is no longer applicable.
Mark
If I could make the counter-case ...
100 years ago, had we asked a chemical-plant manager how they ensured high yield and safe operation, they would have replied 'intuition' - now the whole system is computer controlled, following a disciplined science. 50 years ago, had we asked a logistics manager how they decided on delivery routes, they would have replied 'experience' - now it is done by a proven reliable method.
40 years ago, had we asked a bank manager how they appraised a customer loan application, they would have replied 'intuition' or 'experience' - now it is done by disciplined credit-scoring systems that routinely beat managerial judgement [and look at the price we all just paid for ignoring that discipline!]
30 years ago, had we asked an airline executive how they set prices they would have replied 'intuition' - now they use sophisticated, methodical yield management systems.
The story seems to be one of increasing penetration of proven method at the expense of human intuition - even going beyond physical systems and encroaching on systems rife with human behavioural features.
It looks like management is amongst the last of very few professions where human intuition is more highly regarded than working stuff out.
I would concede that, in the absence of reliable known method, 'experience' is valuable - but experience is the accumulation of tacit knowledge about how things work - not uninformed gut-feel. I would also concede that there are critical issues about managing people and organisations that are not easily subject to method. But for the more substantive management choices and decisions, we all pay a very heavy price, whether as investors, customers, consumers or simply people with a pension, for the continued reliance on management intuition. Successful gamblers are rare, and we are too often led by management who like to game with other people's money and livelihoods, urged on by business media and investor-representatives who know little more than to follow people who seem to be those few successful gamblers.
It's time to recognise and promote the thoughtful evaluation and risk assessment that would be expected if management - especially strategic management - were professionally done.
Now I'll go hide under the table again!
Kim Warren
-----Original Message-----
From: Management Education and Development Discussion [mailto:MG-ED-DV@AOMLISTS.PACE.EDU] On Behalf Of M.P.Fenton-OCreevy
Sent: 22 October 2009 18:46
To: MG-ED-DV@AOMLISTS.PACE.EDU
Subject: Re: Wanted - ideas for a debate on decision-making
Given that conscious attention and analysis is a scarce cognitive resource and like a muscle can become exhausted (See Baumeister's work), the large majority of the decisions we make are through the (intuitive) system 1 route which relies on activation of behavioural repetoires via emotional weighting of stimuli and prior experience. The conscious analytical system 2 route is fairly rare. Even when we think we are engaging in careful analysis we are often just seeking justification for a decision we have already made.
I am very fond of a quote from the gambler and bon viveur John Aspinal as a starting point for discussions about decison making.
" Reason is the worst possible guide to human affairs. It is the undertaker that you send in after the battle to explain the logic of the affair. Instinct and prejudice are much better guides"
Well if we take seriously my arguments above it suggests it may be more productive to improve the much higher proportion of decisions we take through the system 1 route.
You may argue that even if I am right, that this hardly helps us think about how to teach decision-making - how do you improve intuition? In fact there are some already well established routes. First the literature on expertise points to the role of deliberate practice in domains of expertise as important to improving automacity. Second work on naturalistic decision-making is producing some very interesting traning methods. See for example Gary Klein's work on recognition primed decision-making with the fire service and military. Finally, people like Eugene Sadler-Smith are developing teaching approaches to improving intuition.
Mark Fenton-O'Creevy
Professor of Organisational Behaviour
Open University Business School
Walton Hall
Milton Keynes MK7 6AA
United Kingdom
e-mail: m.p.fenton-ocreevy@open.ac.uk
(DL) +44 (0)1908-655804
Fax: +44 (0)1908-655898
________________________________
From: Management Education and Development Discussion [MG-ED-DV@AOMLISTS.PACE.EDU] On Behalf Of Jerrold Strong [JStrong@ACTRANSIT.ORG]
Sent: 22 October 2009 03:21 PM
To: MG-ED-DV@AOMLISTS.PACE.EDU
Subject: Re: Wanted - ideas for a debate on decision-making
Jack,
I don't disagree with your quote, however, perception is all there is,
and to many a decision is just a choice. To others it is a commitment
to action. Though I agree that a decision is of no use without action,
some just don't see that very easily. Perhaps that is what makes this
subject a teaching opportunity.
Jerry
Jerrold Strong, M.A.
Staff Development
AC Transit
1600 Franklin Street, Suite 318
Oakland, CA 94612
510-891-4840
"Everyone gets the experience; some get the lesson."
T.S. Eliot
-----Original Message-----
From: Management Education and Development Discussion
[mailto:MG-ED-DV@AOMLISTS.PACE.EDU] On Behalf Of Jack Ring
Sent: Wednesday, October 21, 2009 6:35 PM
To: MG-ED-DV@AOMLISTS.PACE.EDU
Subject: Re: Wanted - ideas for a debate on decision-making
I suggest that this view highlights not two thoughts but two phrases of
one sentence. As Vic Vroom has said, one without the other is
meaningless.
Perhaps it is this assertion that merits some dialogue.
Jack Ring
> ----- Original Message -----
> From: <nickols@att.net>
> To: <MG-ED-DV@AOMLISTS.PACE.EDU>
> Sent: Wednesday, October 21, 2009 12:34 PM
> Subject: Re: Wanted - ideas for a debate on decision-making
>
>
> The difference between a decision as a choice and a decision as a
> commitment to a course of action. Similarly, the difference between
> decision-making as choosing and decision-making as making a
commitment.
>>
>> --
> Regards,
>>
> Fred Nickols
> Managing Partner
> Distance Consulting, LLC
> nickols@att.net
> www.nickols.us<http://www.nickols.us/>
>>
> "Assistance at A Distance"
>>
>
________________________________
The Open University is incorporated by Royal Charter (RC 000391), an exempt charity in England & Wales and a charity registered in Scotland (SC 038302).
The Open University is incorporated by Royal Charter (RC 000391), an exempt charity in England & Wales and a charity registered in Scotland (SC 038302).