Daniel Kahneman: Beware the “inside view”

Posted on: March 29th, 2012 by bobmorris

Here is an excerpt from an article, featured in The McKinsey Quarterly published by McKinsey & Company. It includes an excerpt from Daniel Kahneman‘s book, Thinking, Fast and Slow. To read the complete article, check out the abundance of other free resources, obtain information about the firm, and sign up for email alerts, please click here.

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In an excerpt from his new book, Thinking, Fast and Slow, the Nobel laureate recalls how an inwardly focused forecasting approach once led him astray, and why an external perspective can help executives do better.

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In the 1970s, I convinced some officials in the Israeli Ministry of Education of the need for a curriculum to teach judgment and decision making in high schools. The team that I assembled to design the curriculum and write a textbook for it included several experienced teachers, some of my psychology students, and Seymour Fox, then dean of the Hebrew University’s School of Education and an expert in curriculum development.

After meeting every Friday afternoon for about a year, we had constructed a detailed outline of the syllabus, written a couple of chapters, and run a few sample lessons. We all felt we had made good progress. Then, as we were discussing procedures for estimating uncertain quantities, an exercise occurred to me. I asked everyone to write down their estimate of how long it would take us to submit a finished draft of the textbook to the Ministry of Education. I was following a procedure that we already planned to incorporate into our curriculum: the proper way to elicit information from a group is not by starting with a public discussion, but by confidentially collecting each person’s judgment. I collected the estimates and jotted the results on the blackboard. They were narrowly centered around two years: the low end was one and a half, the high end two and a half years.

A shocking disconnect

Then I turned to Seymour, our curriculum expert, and asked whether he could think of other teams similar to ours that had developed a curriculum from scratch. Seymour said he could think of quite a few, and it turned out that he was familiar with the details of several. I asked him to think of these teams when they were at the same point in the process as we were. How much longer did it take them to finish their textbook projects?
He fell silent. When he finally spoke, it seemed to me that he was blushing, embarrassed by his own answer: “You know, I never realized this before, but in fact not all the teams at a stage comparable to ours ever did complete their task. A substantial fraction of the teams ended up failing to finish the job.”

This was worrisome; we had never considered the possibility that we might fail. My anxiety rising, I asked how large he estimated that fraction was. “About 40 percent,” he said. By now, a pall of gloom was falling over the room.

“Those who finished, how long did it take them?”

“I cannot think of any group that finished in less than seven years,” Seymour said, “nor any that took more than ten.”

I grasped at a straw: “When you compare our skills and resources to those of the other groups, how good are we? How would you rank us in comparison with these teams?”

Seymour did not hesitate long this time. “We’re below average,” he said, “but not by much.”

This came as a complete surprise to all of us—including Seymour, whose prior estimate had been well within the optimistic consensus of the group. Until I prompted him, there was no connection in his mind between his knowledge of the history of other teams and his forecast of our future.

We should have quit that day. None of us was willing to invest six more years of work in a project with a 40 percent chance of failure. Yet although we must have sensed that persevering was not reasonable, the warning did not provide an immediately compelling reason to quit. After a few minutes of desultory debate, we gathered ourselves and carried on as if nothing had happened. Facing a choice, we gave up rationality rather than the enterprise.

The book was completed eight years later. By that time, I was no longer living in Israel and had long since ceased to be part of the team, which finished the task after many unpredictable vicissitudes. The initial enthusiasm for the idea in the Ministry of Education had waned, and the textbook was never used.

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To read the complete article, please click here.

Daniel Kahneman (Hebrew: דניאל כהנמן‎) (born March 5, 1934) is an Israeli-American psychologist and Nobel laureate. He is notable for his work on the psychology of judgment and decision-making, behavioral economics and hedonic psychology. With Amos Tversky and others, Kahneman established a cognitive basis for common human errors using heuristics and biases (Kahneman & Tversky, 1973; Kahneman, Slovic & Tversky, 1982; Tversky & Kahneman, 1974), and developed prospect theory (Kahneman & Tversky, 1979). He was awarded the 2002 Nobel Memorial Prize in Economics for his work in prospect theory. In 2011, he was named by Foreign Policy magazine to its list of top global thinkers. Currently, he is professor emeritus of psychology and public affairs at Princeton University’s Woodrow Wilson School. Thinking, Fast and Slow was published by Farrar, Straus and Giroux; First Edition (October 25, 2011).


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