Daniel Kahneman’s Strategy for How Your Firm Can Think Smarter

Good article that does not directly link firms getting smarter with sustainability, but many of the principals apply to transformation and change as well.  It is a long article so we've reproduced some and given a link to Wharton at the end.  

Bottom line--let's change preconceptions and bring new insights into managing our lives, companies and ecosystem.  



Nobel economics laureate and psychologist Daniel Kahneman — considered the father of behavioral economics – retired from his teaching position at Princeton a few years ago to co-found a consulting firm in New York. In a talk at the recent Wharton People Analytics Conference, he said of his consulting experience that he had “expected to be awed” by the quality of the decision-making in organizations “that need to make profits to survive in a competitive world.”

I have not been awed,” he stated.

“You look at large organizations that are supposed to be optimal, rational. And the amount of folly in the way these places are run, the stupid procedures that they have, the really, really poor thinking you see all around you, is actually fairly troubling,” he said, noting that there is much that could be improved.

Figuring out how to make the act of decision-making “commensurate with the complexity and importance of the stakes” is a huge problem, in Kahneman’s view, to which the business world does not devote much thought. At the conference he described how significant progress can be made in making organizations “more intelligent.”

The Problem with People

If individuals routinely make poor decisions as Kahneman says, why is that the case? The answer lies in behavioral economics, a field which explains why people often make irrational financial choices and don’t always behave the way standard economic models predict. (Kahneman explained much of his work in his much-lauded 2011 international bestseller Thinking, Fast and Slow.)

Behavioral economists believe that human beings are unknowingly hamstrung by overconfidence, limited attention, cognitive biases and other psychological factors which inevitably cause errors in judgment. These factors affect everything from how we invest in stocks, to how we respond to marketing offers, to how we choose which sandwich to buy for lunch.

“We’re fundamentally over-confident in the sense that we jump to conclusions — and to complete, coherent stories — to create interpretations,” said Kahneman. “So we misunderstand situations, spontaneously and automatically. And that’s very difficult to control.” Furthermore, he said, much of human error is not even attributable to a systematic cause, but to “noise.” “When people think about error, we tend to think about biases…. But in fact, a lot of the errors that people make is simply noise, in the sense that it’s random, unpredictable, it cannot be explained.”

“You look at large organizations that are supposed to be optimal, rational. And the amount of folly in the way these places are run… is actually fairly troubling.”