Posts Tagged ‘Fooled by Randomness’

Did Anyone Notice That…

May 7, 2013
English: Christiane Amanpour at the Vanity Fai...

The queen of news reporting…Christiane Amanpour!

In my last post, I was fooled by randomness, or more specifically, by my System 1 thinking. I had hoped that a couple Kahneman fans would call me out in the comments section – though that is not to imply that my rush to judgement was intended as a test (it wasn’t)!

What am I talking about? Well, in my last post, I called out Bangladeshi Prime Minister Hasina based solely on her appearance on Christiane Amanpour’s excellent show. Now, if we think about it, it makes zero sense to base our entire judgement of her ability to govern on one appearance on one news show. I don’t know if we have any experts on Bangladeshi government  residing here on TPS Planet, but I am certainly not one. I would need a great deal more information on her regime, their policies, and their effectiveness in managing change before making even the slightest judgement in this regard.

The story is a great illustration of how our minds work, though. Our system 1 makes rapid judgements about individuals. When there is little evidence of a particular trait available, we fill in those gaps in information with what we do know – substituting good qualities when we have an overall good feeling about someone and vice versa. On a blog post meant to entertain, the consequences are not dire. In other cases – negotiation involving known suppliers being one – we need to take steps to avoid that bias.

We’ll explore those in greater detail in the days, weeks or months that follow…whenever my lazy System 2 gets itself motivated again.

Taleb, Kahneman, and…Rajakovich?

April 4, 2013

Ok, so the headline might be a bit deceptive. I was not actually, physically present

Nassim Nicholas Taleb

when these two scholars met. But if we take the meta-universe as our context, then I could…oh, I’ll just move along.

Check out this discussion between Daniel Kahneman and Nassim Nicholas Taleb. Trying to summarize an 80-minute discussion would make me an even larger fool of randomness than I was before, so I’ll just subject you to some of it instead! Cha-ching.

A key point of the discussion centered around the following theme: Size means fragility. In percentage terms, the larger the project, the greater the overruns; the larger the organization, the more susceptible they are to risk of bankruptcy; generally, the greater the degree of centralization, the more susceptible we are to extreme negative outcomes.

Most people will understand this point at some level. Taleb used the example of government, the economy, and large banks. I’ll use the example of decision-making in just about any context. Where one person or a small group of people make decisions from on high without a very good knowledge of the details of a situation, they may make small gains in terms of continuity. They may also cause large problems.

The effect is even worse when the person or group is focused on things that will have little impact, instead of those that will have a large one.

Dominant logic and bankruptcy

August 5, 2011
Nassim Nicholas Taleb

There's the man. Image via Wikipedia

John Steen has a very good take on why many firms fail. Check it out here. Anyone who has been in a corporate environment, small business environment, or, most likely, any organization will recognize what Steen (and many others) call “dominant logic.”

For many, there is a very well-defined ‘right’ way to do things. Uniformity is an end in itself, and bounds are not pushed. While curing human nature is not likely to happen, I’d propose one way to start is having everyone read Fooled By Randomness by my main man, Nassim Taleb. There will be a quiz, and no, there is no highly organized structure that allows you to read only chapter summaries. Off you go.

Good post on sustainability in procurement

June 15, 2011

Peter Smith at Spend Matters takes a look at the sustainability issue, and his thoughts are pretty much in line with those of the TPS report. There is nothing controversial in what he says, but for the environment at all costs crowd, there will be. Check it out here.

From an observer of business, as well as a participant, I do find these sorts of trends and kicks that rush through the world of business a bit amusing when taken from a historical perspective. The good news is that the sustainability kick is adding additional analytical tools and encouraging people to be more thorough in their analyses. The only note of caution that TPS report would like to strike is that sustainability is not some entirely new area of study.

There is a balance between these risks and other risks, and we need to take the whole picture into account. If we rush from one risk to the next, conducting deep dive analyses at every turn, we may lose focus on the big picture, up to and including focusing only on risk. Innovation from the supply base is another hot topic (if there is such a thing in the procurement world), so there is upside to be had through hard work as well.

It is also tempting to spot risks that come to fruition, and blame people for not seeing them. However, this is one of the chief ways in which people are fooled by randomness through selection bias (we hear about the risks that happen and are quick to blame, but don’t hear about the risks that don’t happen).

If Yoda were here, he’d probably say something like ‘unlimited, resources are not…focus wisely.’

How bloggers are fooled by randomness

March 21, 2011

If there is one thing that each of you needs to read it is Fooled By Randomness by Nassim Nicholas Taleb. Some people are hopelessly ensnared by their own frame of reference and are destined to remain fooled by randomness forever. For others, a light will go on, and their perspective will be adjusted.

It is easier to understand the principles of randomness by pointing out when it fools us, so here’s a list of examples that I have seen.

1. Mixing up cause and effect – T. Cummins on the Commitment Matters blog provides a couple examples in one of his most recent posts. Check it out here. In this case, the apparent recent decline in collaboration is due to a decline in trust. So, humans decided 20-30 years ago to stop trusting each other? He mentions greater anonymity, but is there greater or lesser anonymity now than 40 years ago? He also mentions greater competition. So, in the past, people did not strive as hard to make money? He mentions impersonal business relationships, globalization, and lack of concern about the environment. So in the early 1900’s Ford motor company had personal, trusting relationships with its suppliers? The DuPont behemoth violating the Sherman anti-trust act was acting out of a deep-rooted connection with its workers, the public, and the environment? Coal mining companies were less interested in making lots of money and more concerned about the environment in which they worked?  Sorry, the good old days argument just doesn’t hold up.

2. Randomness in selecting time intervals – It is not entirely clear, but inferring from the context of the Commitment Matters blog, it seems as though the time horizon chosen is the last 100 years or so. Why is the last 100 years more instructive than the last 50,000? Selecting a recent time interval allows small changes in human behavior to seem large when much of our evolution took place thousands of years ago, not hundreds.

3. Blame America cop-out – If you are an average person in America, you most likely believe that everyone just kind of recognizes that the US is a world leader given the position of power it currently occupies. Having lived in the UK for the last 3.5 years, I assure you that even my last statement will be slightly controversial. However, the tacit acceptance of this position of power comes in the form of blaming the US for some of the ills of the business world such as increased litigation, less collaboration, adversarial negotiating style, etc. What is not clear is why these things have necessarily inserted themselves into the global culture. The US Department of Exporting Bad Business Practices (USDEBBP) is just not that good. There are many causes of trends…created by a system so complex than anyone reducing it to “It came from America!”….um, not much to say to those people.

4. The world is moving faster – may be a sub-set of number 2, but this one deserves its own post due to its having wormed its way into conventional wisdom. We hear phrases like “of course, innovation these days is moving at lightning speed,” and “our lives are so much more hectic than before,” and concepts that make things seem really complex like “mass customization.” How do you think a textile producer in the early-mid 1700’s felt when he used to make textiles starting from raising the sheep through to selling it in the marketplace, and then found himself as only one link in the chain after the introduction of the factory system. How about the farmer that used to measure his day by the sun rising and setting and then began to work in a factory built on the concepts of Taylorism for 12 hours per day? How fast was his world moving? How do you think today will look through the lens of 50 years from now? From our own very limited perspective, it may seem that the world is moving faster, but step off the train for a moment, look at the big picture, and it will tell a much different story. We really aren’t that special.

If I could only recommend one book…

February 15, 2011

It would be either Fooled by Randomness by Nassim Nichloas Taleb for its logical acuity or the much cheesier The 7 Habits of Highly Effective People by Stephen R. Covey, which is lower on the scale of brilliance, but a better guide for how to live. We’ll leave aside (for now) whether books of these types actually have any effect. I’d suggest checking out the link above, but then I’d lose your attention from this blog…doh. Competing with Covey is like taking on Kobayashi in a hot dog eating contest.

Hot dog, Kobay?

The opportunity to write this short post has given me the opportunity to remind me of habit number 1 – ‘Be Proactive.’ One of the the things that gives me a chuckle (on the inside normally, but occasionally even on the outside) is when I hear people driving themselves crazy over something that is completely out of their control. Whether it is a CEO speculating on and worrying about the state of the economy or a currency move, or it is a friend involving themselves deeply in the question of whether mutual friend, Johnny, should have gone to pick up his girlfriend Susie at the airport, it is an example of dealing in the Circle of Concern at the expense of our Circle of Influence.

Susie will need to decide what her expectations are…the effective person won’t lose any sleep.

Contracts for agility and innovation

February 6, 2011

We’ve come a long way in the way we communicate with each other, as evidenced by a recent conversation I had with a friend who is a bit older than me:

Repeat after Nassim - " I will not be fooled by randomness when it matters most"

Sean: Dave, are you familiar with a form of media known as “radio”?

Dave: It sounds familiar…

Sean: Well, there is this piece of equipment that is NOT connected to the internet….

Although methods of communication have undergone step changes, we have a great deal more work to do with the way we do contracts and supplier relationships generally. There is a good blog post on the commitment matters blog that explains how contracting needs to adapt. I remain skeptical of any claim that there is greater volatility in markets now than in the past (one of the ways in which we are often “fooled by randomness“), however, the best part of the argument in the blog post describes a very common situation – the mistake of attempting to be precise in the face of uncertain outcomes.


October 22, 2010

I just listened to the first couple chapters of Fooled by Randomness by Nassim Nicholas Taleb in the car on the way to work this morning. As the title suggests, it explores how we are hardwired into molding history to fit a story that we have developed retrospectively to events, and that the actual event was much more random than we later believe it to be….can’t wait to keep reading.

The best part for me was the discussion of professionally successful people, and how, intelligence-wise, they are not (on average) markedly superior to the rest of us. Hard work and persistence were necessary, but not causal. What was causal? A clue is in the title…

The other important part is that different people have different heuristics, i.e. mental shortcuts for interpreting the data, things and emotions with which they are presented. We like the things that are presented in a way that matches up most closely with our own mental framework, but that mental framework is not shared by anyone else…which is why it is always quite amusing when people quibble over the details of things that, whether they are presented one way or slightly differently, don’t have any effect on the overall meaning.

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