Book Cover

 

Some characteristics influence the assessment of a situation more than others. We weight characteristics and attributes whether we are aware or not. When we are not aware we are defaulting to system 1 thinking which as we have read is very biased. This is one reason why formal decision-making processes codify the weighting of attributes to avoid personal biases. 

Kahneman discusses two effects that often affect the act of decision making in teams. The first is the possibility effect. The possibility effect occurs when the possibility of an outcome moves from zero probability to even a minor probability (5% probability). In this scenario, people perceive the possibility of the outcome as being far more probable. Earlier this year, I was discussing a request for a team to deliver 14 features by the end of the year. Based on the throughput of the team, the probability of delivery was approximately 3%. The department executive felt that it was possible they should commit to the request. The second effect, the certainty effect, occurs when a very possible outcome can be converted to certainty. In this scenario people overweight outcomes that are certain relative to those that are highly probable. A few evenings ago I heard an advertisement for a company that would convert a structured payment into a single payment (at a significant discount – I read the fine print). People that take this type deal trade structured payments that have a very high probability of payment for the absolute certainty of a single payment. It is easy to see both of these effects in software organizations.  The possibility effect contributes to leaders and project managers rationalizing work that is only nearly impossible while the certainty effect explains some of the resistance to the shifting continuous delivery and product models. 

The Fourfold Pattern provides a way to think about how people behave when faced with decisions that will yield gains and losses that either is a high probability (certainty effect) or q low probability. The Patten can be illustrated as a risk matrix (page 317 in my copy). Understanding the impact of risk on decision-making is useful when coaching and mentoring decision-makers to recognize their biases. In the end, Kahneman reminds us that, “People are not perfectly rational choosers.”

Remember, if you do not have a favorite, dog-eared copy of Thinking, Fast and Slow, please buy a copy.  Using the links in this blog entry helps support the blog and its alter-ego, The Software Process and Measurement Cast. Buy a copy on Amazon,  It’s time to get reading!

The installments:

Week 1: Logistics and Introduction – http://bit.ly/2UL4D6h    

Week 2: The Characters Of The Story – http://bit.ly/2PwItyX  

Week 3: Attention and Effort – http://bit.ly/2H45x5A 

Week 4: The Lazy Controller – http://bit.ly/2LE3MQQ 

Week 5: The Associative Machine – http://bit.ly/2JQgp8I 

Week 6: Cognitive Ease – http://bit.ly/2VTuqVu 

Week 7: Norms, Surprises, and Causes – http://bit.ly/2Molok2 

Week 8: A Machine for Jumping to Conclusions – http://bit.ly/2XOjOcx 

Week 9: How Judgement Happens and Answering An Easier Question – http://bit.ly/2XBPaX3 

Week 10:  Law of Small Numbers – http://bit.ly/2JcjxtI 

Week 11: Anchors – http://bit.ly/30iMgUu 

Week 12: The Science of Availability – http://bit.ly/30tW6TN 

Week 13: Availability, Emotion, and Risk – http://bit.ly/2GmOkTT 

Week 14: Tom W’s Speciality – http://bit.ly/2YxKSA8 

Week 15: Linda: Less Is More – http://bit.ly/2T3EgnV 

Week 16: Causes Trump Statistics – http://bit.ly/2OTpAta 

Week 17: Regression To The Mean – http://bit.ly/2ZdwCgu 

Week 18: Taming Intuitive Predictions — http://bit.ly/2kAHClJ 

Week 19: The Illusion of Understanding – http://bit.ly/2lK954p  

Week 20: The Illusion of Validity –   http://bit.ly/2mfyrYh  

Week 21: Intuitions vs Formulas – http://bit.ly/2kx7kri 

Week 22: Expert Intuition – http://bit.ly/2ooe50h   

Week 23: Chapter 23: The Outside View http://bit.ly/35dOibJ

Week 24: Chapter 24 The Engine of Capitalism –  http://bit.ly/2WgNSgV

Week 25: Chapter 25  Bernoulli’s Errorshttp://bit.ly/32bJ8dV 

Week 26: Chapter 26 – Prospect Theoryhttp://bit.ly/2Nx3tWI  

Week 27: Chapter 27 – Endowment Effecthttp://bit.ly/2QwHgdz 

Week 28: Chapter 28 – Bad Events  http://bit.ly/33hAgUi