Book Cover

Kahneman begins this chapter with a story about how Israelis reacted to the suicide bombings of the early 2000s.  While the bombings were rare, System 1 Thinking combined with an availability cascade caused an overstated impact on people’s behavior.  He goes further and points out that lotteries have the same basic pattern of behavioral impact. In both cases people overweight unlikely outcomes. The chapter is built on two premises:

  1. “People overestimate the probabilities of unlikely events.”
  2. “People overweight unlikely events in their decisions.

To illustrate the distinction, I will recount a situation I was involved in earlier this year. I was asked to run a Monte Carlo Analysis based on a team’s work item throughput to help in planning.  The team was trying to deal with a reputation of being erratic and unreliability (there was a mismatch with what they committed to do and what they delivered). During planning, the team decided that they felt they had a high probability of “taking” and delivering 27 work items. The Monte Carlo Analysis suggested they had a 3% probability  — the team was overestimating the probability of an unlikely event. When asked to explain how they were going to accomplish this feat, they explained that they were going to not go to meetings that did not directly support the completing work items. As it turns out, the team was overweighing unlikely events in their decisions. FYI – I had lunch and drinks with the team during a two-day all-hands meeting held the week so much for avoiding meetings not directly linked to delivering software to production.

Another factor is the impact of cognitive ease. The ease of understanding (and vividness) contributes to the certainty effect.  Holding an event vividly in your mind causes your perception of the possibility of an event happening to be overweighted. As leaders and coaches, we can use vividness and ease of imagery in our stories and lessons to help guide behavior.

A third factor identified by Kahneman is denominator neglect. The size of the numerator overshadows the denominator, causing some people to forget it entirely.  For example, in 2017 there were 88 unprovoked shark attacks — as a percentage of the world population that is below trivial. But seeing a headline stating 88 people were attacked by sharks provokes a reaction. What denominator neglect suggests is that it is important to frame the conversation to make it easy to provoke a supportive reaction by decision-makers. 

As leaders and coaches, we need to understand the collision of utility theory and prospect theory. In utility theory, weight and probability are the same.  If something has a 10% probability of occurring, the weight we give that outcome in making a decision should be 10%. Unfortunately, that is not how people always act. The combination of focused attention (availability cascade), confirmation bias, and cognitive ease cause probability and weight to be disconnected.  

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

Week 29: The Fourfold Patternhttp://bit.ly/2Y3doHg