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 –    

Week 2: The Characters Of The Story –  

Week 3: Attention and Effort – 

Week 4: The Lazy Controller – 

Week 5: The Associative Machine – 

Week 6: Cognitive Ease – 

Week 7: Norms, Surprises, and Causes – 

Week 8: A Machine for Jumping to Conclusions – 

Week 9: How Judgement Happens and Answering An Easier Question – 

Week 10:  Law of Small Numbers – 

Week 11: Anchors – 

Week 12: The Science of Availability – 

Week 13: Availability, Emotion, and Risk – 

Week 14: Tom W’s Speciality – 

Week 15: Linda: Less Is More – 

Week 16: Causes Trump Statistics – 

Week 17: Regression To The Mean – 

Week 18: Taming Intuitive Predictions — 

Week 19: The Illusion of Understanding –  

Week 20: The Illusion of Validity –  

Week 21: Intuitions vs Formulas – 

Week 22: Expert Intuition –   

Week 23: Chapter 23: The Outside View

Week 24: Chapter 24 The Engine of Capitalism –

Week 25: Chapter 25  Bernoulli’s Errors 

Week 26: Chapter 26 – Prospect Theory  

Week 27: Chapter 27 – Endowment Effect 

Week 28: Chapter 28 – Bad Events

Week 29: The Fourfold Pattern