KM Think Tank Tapping into Fast and Slow ThinkingDavid Williams Dr Kate AndrewsLange Consulting & Software Knowablewww.langeconsulting.com.au www.knowlable.com.au
KM Think TankResearch, analysisand creativethinking on a topicfor the good of thebroadercommunity
ObjectiveThis 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, and3. 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 Magazines 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 Success o 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 dont 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?
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 theoryPeople have an irrational tendency to be lesswilling to gamble with profits than with losses.This means selling quickly when we earn profitsbut not selling if we are running losses
Thinking, Fast and SlowSystem 1 is fast, instinctive and emotionalSystem 2 is slower, more deliberative, and morelogicalThere are cognitive biases associated with eachtype
Gary A. Kleino Ph.D. in Experimental Psychologyo Assistant Professor of Psychology at Oakland Universityo Research psychologist for the U.S. Air Forceo 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 Decisiono Thinking with the subconsciouso Uses Intuition and based on ‘patterns’o Multiple decisions, multiple inputs, multiple optionso Effortlesso Dynamico Fasto Processes automaticallyo Emotiveo Decisiveo Can be primed or misled
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 agreesAnchored decisions System 1 sets the agenda System 2 thinks about itRational decisions No input from System 1 System 2 is on its ownCognitive dissonance Input from system 1 overruled
When can we trust System 1?Successful rapid-cognition judgement involvespattern 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 stableregularities i.e. stock picking, political forecasts(chaos)
System 1 vs System 2A bat and ball together $1.10If 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
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 Militaryo Tacticalo Operationalo Strategic
Political 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
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 chosen o The Expected Loss (EL) rule dictates that the action with the smallest expected loss should be choseno Type 3: Decision Making under Risk. Decision maker has some knowledge regarding probability of occurrence of each outcome or state of nature.
Decision Support Tools o Manufacturing Resource Planning (MRPII)o Affinity Charting o Marketing, 4Ps ofo Analytical Hierarchy Process o Materials Requirements Planning (MRP)o Balanced Scorecard (Kaplan and Norton) o Matriceso Benchmarking o Matrix 2x2o Boston Plot (see also Product life cycle model below) o Media for Communicationo Brainstorming o Mintzbergs 5 Ps for Strategyo Capabilities and Competences o P-Ro Capability and Maturity - Hayes and Wheelwrights Four Stages o Pareto Principleo Cause and Effect Diagram, Fishbone, Ishikawa Diagram o Polar charts, Radar chartso Check Sheets and Check Lists o Porters 5 Forceso Clustering Processes o Porters Generic Competitive Strategies (ways of competing)o Conflict Analysis o Porters Value Chaino Control Charts o 4 Ps of marketingo Corporate Strategy o Product Life Cycle (See Boston Plot above)o Cost / Benefit / Risk Analysis o Programme Evaluation and Review Technique (PERT)o Criteria Rating Form, Weighted Ranking o Quality Frameworko Critical Path Analysis (CPA, CPM) o Quality Function Deployment (QFD)o Customer Surveys and Interviews o Quality Organisations and awardso D-F o Quality, Time, Cost & Flexibilityo Data Sources (including links to some www sources) o Quality - TQM Toolso Decision Trees o Quantitative Decision Makingo Deming Cycle (Plan, do, check, act) o Robustness Analysiso Demings 14 points o S-Uo Drawing Packages o Sensitivity Analysiso Finite Capacity Scheduling o Scatter Plotso Flexibility Framework o Strategic Options Development and Analysis (SODA)o Flow Charts o Soft Systems Methodologyo Force field Analysis o Spreadsheets and databaseso From/to Chart o Statistical Process Controlo G-I o Statistical Softwareo Gap Analysis o Strategic Assessment Modelo Graphs, Gantt, Histograms and Bar charts o Strategic Assumptions Surfacing and Testingo Hewlett-Packard Return Map o Strategic Choice Approacho Histogram or Bar Graph o SWOT (Strengths, Weaknesses, Opportunities, Threats)o Importance / Performance Matrix o Time Frameworko Innovation Funnel o TQM (Total Quality Management) Toolso J-L o Trade-off Modelso JIT (Just-In-Time) o V-Zo Kanban o Value Chain (Porters)o M-O o Vrooms expectancy theoryo Manufacturing Decision Areas
How the decision models overlay on the Cynefin modelDecision Making under Decision Making underRisk Certainty Type 2 decision making Multiple Attribute RPD V3 RPD V2 AnalyzeGame theory Decision Making underDecision Making under CertaintyUncertainty Single AttributeGut feeling / instinct Type 1 decision making Compare RPD V1
Initial observationso 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
Where to from here?Collaborative creation of a paper on how tomake 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