Tag: Uncertainty

Risk Savvy Citizens

Risk Savvy Citizens

Posted on by jabittan
In Risk Savvy Gerd Gigerenzer argues for changes to the way that financial systems, healthcare systems, and discourse around public projects operate. He argues that we are too afraid of risk, allow large organizations to profit from misunderstandings of risk, and that our goals are often thwarted by poor conceptions of risk. Becoming risk savvy citizens, he argues, can help us improve our institutions and make real change to move forward in an uncertain world.

“The potential lies in courageous and risk savvy citizens,” writes Gigerenzer.

I think that Gigerenzer is correct to identify the importance of risk savvy citizens. We are more interconnected than we ever have been, and to develop new innovations will require new risks. Many of the institutions we have built today exist to minimize both risk and uncertainty, unintentionally limiting innovation. Moving forward, we will have to develop better relationships toward risk to accept and navigate uncertainty.

A population of risk savvy citizens can help reshape existing institutions, and will have to lean into risk to develop new institutions for the future. This idea was touched on in Bruce Katz and Jeremy Nowak’s book The New Localism where they argue that we need new forms of public private partnerships to manage investment, development, and public asset management. Public agencies, institutions we have relied upon, have trouble managing and accepting risk, even if they are comprised of risk savvy citizens. The solution, Katz and Nowak might suggest, is to reshape institutions so that risk savvy citizens can truly act and respond in ways that successfully manage reasonable risks. Institutions matter, and they need to be reshaped and reformed if our courageous and risk savvy citizens are going to help change the world and solve some of the ills that Gigerenzer highlights.

A Leader's Toolbox

A Leader’s Toolbox

Posted on by jabittan
In the book Risk Savvy Gerd Gigerenzer describes the work of top executives within companies as being inherently intuitive. Executives and managers within high performing companies are constantly pressed for time. There are more decisions, more incoming items that need attention, and more things to work on than any executive or manager can adequately handle on their own. Consequentially, delegation is necessary, as is quick decision-making based on intuition. “Senior managers routinely need to make decisions or delegate decisions in an instant after brief consultation and under high uncertainty,” writes Gigerenzer. This combination of quick decision-making under uncertainty is where intuition comes to play, and the ability to navigate these situations is what truly comprises the leader’s toolbox.

 

Gigerenzer stresses that the intuitions developed by top managers and executives are not arbitrary. Successful managers and companies tend to develop similar tool boxes that help encourage trust and innovation. While many individual level decisions are intuitive, the structure of the leader’s toolbox often becomes visible and intentional. As an example, Gigerenzer highlights a line of thinking he uncovered when working on a previous book. He writes, “hire well and let them do their jobs reflects a vision of an institution where quality control (hire well) goes together with a climate of trust (let them do their jobs) needed for cutting-edge innovation.”

 

In many companies and industries, the work to be done is incredibly complex, and a single individual cannot manage every decision. The structure of the decision-making process necessarily needs to be decentralized for the individual units of the team to work effectively and efficiently. Hiring talented individuals and providing them with the autonomy and tools necessary to be successful is the best approach to get the right work done well.

 

Gigerenzer continues, “Good leadership consists of a toolbox full of rules of thumb and the intuitive ability to quickly see which rule is appropriate in which context.”

 

A leader’s toolbox doesn’t consist of specific lists of what to do in certain situations or even specific skills that are easy to check off on a resume. A leader’s toolbox is built by experience in a diverse range of settings and intuitions about things as diverse as hiring, teamwork, and delegation. Because innovation is always uncertain and always includes risk, leaders must develop intuitive skills and be able to make quick and accurate judgements about how to best handle new challenges and obstacles. Intuition and gut-decisions are an essential part of leadership today, even if we don’t like to admit that we make important decisions on intuition.
Gut Decisions

Gut Decisions

Posted on by jabittan
“Although about half of professional decisions in large companies are gut decisions, it would probably not go over well if a manager publicly admitted, I had a hunch. In our society, intuition is suspicious. For that reason, managers typically hide their intuitions or have even stopped listening to them,” Gerd Gigerenzer writes in Risk Savvy.

 

The human mind evolved first in small tribal bands trying to survive in a dangerous world. As our tribes grew, our minds evolved to become more politically savvy, learning to intuitively hide our selfish ambitions and appear honest and altruistic. This pushed our brains toward more complex activity, which took place outside our direct consciousness, hiding in gut feelings and intuitions. Today however, we don’t trust those intuitions and gut decisions, even though they never left us.

 

We do have good reason to discount intuitions. Our minds did not evolve to serve us perfectly in a complex, data rich world full of uncertainty. Our brains are plagued by motivated reasoning, biases, and cognitive limitations. Making gut decisions can lead us vulnerable to these mental challenges, leading us to distrust our intuitions.

 

However, this doesn’t mean we have escaped gut decisions. Gerd Gigerenzer thinks that is actually a good thing, especially if we have developed years of insight and expertise through practice and real life training. What Gigerenzer argues is that we still make many gut decisions in areas as diverse as vacation planning, daily exercise, and corporate strategies. We just don’t admit we are making decisions based on intuition rather than careful statistical analysis. Taking it a step further, Gigerezner suggests that most of the time we make a decision at a gut level, and “produce reasons after the fact.” We rationalize and use motivated reasoning to explain why we made a decision and we try to deceive ourselves to believe that we always intended to do the rational calculation first, and that we really hadn’t made up our mind until after we had done so.

 

Gigerenzer suggests that we acknowledge our gut decisions. Ignoring them and pretending they are not influential wastes our time and costs us money. An executive may have an intuitive sense of what to do in terms of a business decision, but may be reluctant to say they made a decision based on intuition. Instead, they spend time doing an analysis that didn’t need to be done. They create reasons to support their decision after the fact, again wasting time and energy that could go into implementing the decision that has already been made. Or an executive may bring in a consulting firm, hoping the firm will come up with the same answer that they got from their gut. Time and money are both wasted, and the decision-making and action-taking structures of the individual and organization are gummed up unnecessarily. Acknowledging gut decisions and moving forward more quickly, Gigerenzer seems to suggest, is better than rationalizing and finding support for gut decisions after the fact.
intelligence - Joe Abittan

Intelligence

Posted on by jabittan
“Intelligence is not an abstract number such as an IQ, but similar to a carpenter’s tacit knowledge about using appropriate tools,” writes Gerd Gigerenzer in his book Risk Savvy. “This is why the modern science of intelligence studies the adaptive toolbox that individuals, organizations, and cultures have at their disposal; that is, the evolved and learned rules that guide our deliberate and intuitive decisions.”

 

I like Gigerenzer’s way of explaining intelligence. It is not simply a number or a ratio, but it is our knowledge and ability to understand our world. There are complex relationships between living creatures, physical matter, and information. Intelligence is an understanding of those relationships and an ability to navigate the complexity, uncertainty, and connections between everything in the world. Explicit rules, like mathematical formulas, help us understand some relationships while statistical percentages help us understand others. Recognizing and being aware of commonalities between different categories of things and items and identifying patterns help us understand these relationships and serves as the basis for our intelligence.

 

What is important to note, is that our intelligence is built with concrete tools for some situations, like 2+2=4, and less concrete rules of thumb for other situations, like the golden rule – do to others what you would like others to do to you. Gigerenzer shows that our intelligence requires that we know more than one mathematical formula, and that we have more than one rule of thumb to help us approach and address complex relationships in the world. “Granted, one rule of thumb cannot possibly solve all problems; for that reason, our minds have learned a toolbox of rules. … these rules of thumb need to be used in an adaptive way.”

 

Whether it is interpreting statistical chance, judging the emotions of others, of making plans now that delay gratification until a later time, our rules of thumb don’t have to be precise, but they do need to be flexible and adaptive given our current circumstances. 2+2 will always equal 4, but a smile from a family member might be a display of happiness or a nervous impulse and a silent plead for help in an awkward situation. It is our adaptive toolbox and our intelligence that allows us to figure out what a smile means. Similarly, adaptive rules of thumb and intelligence help us reduce complex interactions and questions to more manageable choices, reducing uncertainty about how much we need to save for retirement to a rule of thumb that tells us to save a small but significant amount of each pay check. Intelligence is not just about facts and complex math. It is about adaptable rules of thumb that help us make sense of complexity and uncertainty, and the more adaptive these rules of thumb are, the more our intelligence an help us in the complex world of today and into the uncertain future.
Navigating Uncertainty with Nudges

Navigating Uncertainty with Nudges

Posted on by jabittan
In Risk Savvy Gerd Gigerenzer makes a distinction between known risks and uncertainty. In a foot note for a figure, he writes, “In everyday language, we make a distinction between certainty and risk, but the terms risk and uncertainty are used mostly as synonyms. They aren’t. In a world of known risks, everything, including the probabilities, is known for certain. Here statistical thinking and logic are sufficient to make good decisions. In an uncertain world, not everything is known, and one cannot calculate the best option. Here, good rules of thumb and intuition are also required.” Gigerenzer’s distinction between risk and uncertainty is important. He demonstrates that people can manage decision-making when making risk based decisions, but that people need to rely on intuition and good judgement when dealing with uncertainty. One solution to improved judgement and intuition is to use nudges.

 

In the book Nudge, Cass Sunstein and Richard Thaler encourage choice architects to design systems and structures that will help individuals make the best decision in a given situation as defined by the chooser. Much of their argument is supported by research presented by Daniel Kahneman in Thinking Fast and Slow, where Kahneman demonstrates how predictable biases and cognitive errors can lead people to making decisions that they likely wouldn’t make if they had more clear information, had the ability to free themselves from irrelevant biases, and could improve their statistical thinking. Gigerenzer’s quote supports Sunstein and Thaler’s nudges by building on the research from Kahneman. Distinguishing between risk and uncertainty helps us understand when to use nudges, and how aggressive our nudges may need to be.

 

Gigerenzer uses casino slot machines as an example of risk and for examples of uncertainty uses stocks, romance, earthquakes, business, and health. When we are gambling, we can know the statistical chances that our bets will pay off and calculate optimal strategies (there is a reason the casino dealer stays on 17). We won’t know what the outcome will be ahead of time, but we can precisely define the risk. The same cannot be said for picking the right stocks, the right romantic partner, or when creating business, earthquake preparedness, or health plans. We may know the five year rate of return for a company’s stocks, the divorce rate in our state, the average frequency and strength of earthquakes in our region, and how old our grandfather lived to be, but we cannot use this information alone to calculate risk. We don’t know exactly what business trends will arise in the future, we don’t know for sure whether we have a genetic disease that will strike us (or our romantic partner) down sooner than expected, and we can’t say for sure that a 7.0 earthquake is or is not possible next month.

 

But nudges can help us in these decisions. We can use statistical information for business development and international stock returns to identify general rules of thumb when investing. We can listen to parents and elders and learn from their advice and mistakes when selecting a romantic partner, intuiting the traits that make a good (or bad) spouse. We can overengineer our bridges and skyscrapers by 10% to give us a little more assurance that they can survive a major and unexpected earthquake. Nudges are helpful because they can augment our gut instincts and help bring visualizations to the rules of thumb that we might utilize.

 

Expecting everyone’s individual intuition and heuristics to be up to the task of navigating uncertainty is likely to lead to many poor choices. But, if we help pool the statistical information available, provide guides, communicate rules of thumb that have panned out for many people, and structure choices in ways that help present this information, then people can likely make marginally better decisions. My suggestion in this post, is a nudge to use more nudges in moments of uncertainty. When certainty exists, or even when calculable risks exist, nudges may not be needed. However, once we get beyond calculable risk, where we must rely on judgement and intuition, nudges are important tools to help people navigate uncertainty and improve their decision making.
Avoiding Gambles

Avoiding Gambles

Posted on by jabittan
“Most people dislike risk (the chance of receiving the lowest possible outcome), and if they are offered a choice between a gamble and an amount equal to its expected value they will pick the sure thing,” writes Daniel Kahneman in Thinking Fast and Slow. I don’t want to get too far into expected value, but in my mind I think of it as a discount on the total value of the best outcome of a gamble blended with the possibility of getting nothing. Rather than the expected value of a $100 dollar bet being $100, the expected value is going to come in somewhere less than that, maybe around $50, $75, or $85 dollars depending on whether the odds of winning the bet are so-so or are pretty good. You will either win $100 or 0, not $50, $75, or $85, but the risk factor causes us to value the bet at less than the full amount up for grabs.

 

What Kahneman describes in his book is an interesting phenomenon where people will mentally (or maybe subjectively is the better way to put it) calculate an expected value in their head when faced with a betting opportunity. If the expected value of the bet that people calculate for themselves is not much higher than a guaranteed option, people will pick the guaranteed option. The quote I used to open the post explains the phenomenon which you have probably seen if you have watched enough game show TV. As Kahneman continues, “In fact a risk-averse decision maker will choose a sure thing that is less than the expected value, in effect paying a premium to avoid the uncertainty.”

 

On game shows, people will frequently walk away from the big possibility of a pay off with a modest sum of cash if they are risk averse or if the odds seem really stacked against them. What is interesting is that we can study when people make the bet versus when people walk away, and observe patterns in our decision making. It turns out we can predict the situations that drive people toward avoiding gambles, and the situations which encourage them. It turns out that the reward has to be about two times the possible loss before people will make a gamble. If the certain outcome is pretty close to the expected outcome, people will pick the certain outcome. If there is no certain outcome, people usually need a reward that is at least 2X what they might lose before people will be comfortable with a bet. We might like to take chances and gamble from time to time, but we tend to be pretty risk averse and we tend to prefer guaranteed outcomes, even at a slight cost over the expected value of a bet, than to lose it all.

Don’t Run Out To Meet Your Suffering

Posted on by jabittan
I’m not sure what it is about American culture today, but we seem to be really good at worrying about almost everything. We fear lots of uncertainties and spend a lot of time uptight about things that might go wrong. While a  certain level of worry is ok, being what encourages us to use calendars, set reminders, and buy life insurance, we often slip into continual dread and fear that everything is going to crash.

 

“How often has the unexpected happened!” Writes Seneca in Letters from a Stoic, “How often has the expected never come to pass! And even though it is ordained to be, what does it avail to run out to meet your suffering?”

 

The first line of the quote above is where many of us seem  to live our lives, at least when we are dealing with fear and anxiety. We worry about the wrongs that could happen and about the misfortune that could strike at any moment. Ruminating in this state has the power to push us into depression, ruin our health, and deteriorate our relationships, potentially even bringing about the terrible outcomes we originally feared.

 

But that is not all of Seneca’s quote. What we believe is certain to happen often isn’t. What we predict won’t always come to pass, and while sometimes that may be a huge negative, there is no reason to live within that negativity before it has reached us. We shouldn’t run forward and live with what we fear will happen, or live with the fear the something we terrible will unexpectedly happen before it has. Don’t run out to meet your suffering.

 

Seneca continues, “Even bad fortune is fickle. Perhaps it will come, perhaps not; in the meantime it is not. So look forward to better things.” 

 

All we have in life is the current moment. We can generally anticipate the range of things that will happen in the next moment of our lives and we can build smart plans for the future, but we live in the here and now, not in the past and not in the future our minds are planning. The good that we hope for may play out, but things may also go poorly. If we constantly live ahead of our current moment, we will be distraught by the possible bad things that could happen. Seneca encourages us to remember that the good and the bad might not come, and that as a response we should lean toward being hopeful and use the current moment to try to shape a positive future. Don’t be stuck ruminating over the negative what-ifs of the future and ultimately ruin where you are right now.

Always Asking Questions

Posted on by jabittan
Questioning the world around us is part of what makes us human. Our search for answers and a better understanding of the universe is the story of human progress on Earth, and we must constantly ask questions and to find new answers to propel us forward. Often we never reach the answer we were hoping for, but we still ask questions and we still do our best to continue to understand what is taking place in the world around us.

 

In Between the World and Me, Ta-Nehisi Coats discusses how he learned to question the world, to truly strive to better understand the universe, by observing what took place around him and asking why.

 

“My mother and father were always pushing me away from secondhand answers—even the answers they themselves believed. I don’t know that I have ever found any satisfactory answers of my own. But every time I ask it, the question is refined. That is the best of what the old heads meant when they spoke of being “politically conscious” —as much a series of actions as a state of being, a constant questioning, questioning as a ritual, questioning as exploration rather than the search for certainty.”

 

Recently I have been more aware of the answers people have to the frequent questions our world asks: Who should we elect, what is the nature of religion, how should we organize society to maximize human progress? Listening to the responses people have, it is clear to me that most people do not have answers, but instead have partial secondhand responses that they think they should defend. Most people do not live their lives in a constant state of questioning, and if they do, they seek out certainty to place themselves and their actions on the correct side of any given issue. Rather than inquiry and a deeper understanding, people pursue comfort and reaffirmation. This is clear in the simplistic shallow answers people offer to complex questions.

 

What Coats learned from his parents was to find his own answers. His parents pushed him to learn, to be aware of the world around him, to ask why, and to not accept the simple answers that people offered. His story shows why it is important to be constantly questioning what we know, why we know what we know, and whether our model of the universe is operating with the best information available. It is likely that we won’t find perfect answers, but that does not mean we should stop questioning or that we are on the wrong path because our knowledge is in one way or another incomplete. Recycling answers from someone else, especially secondhand answers that were never formed as complete thoughts, is dangerous and misleading. We fall into cycles where we fail to actually look for answers and build more complete understanding, and instead look past the answer given and find the response that seems to support our identity and the belief we want to hold about ourselves.

 

Our understanding of the universe should be nuanced because the universe, human interaction, and the organization of everything from atoms to people is complex. When we fall back on absolute answers and simple solutions, we are avoiding the nuanced and the challenging investigation of our planet. Easy and assuring answers are nice, but they do not aid human progress and they do not allow us to live in a state where we improve upon our knowledge and beliefs.

In Your 20s

Posted on by jabittan
I am currently 25 years-old and I have been working to find a solid path forward in my life. I feel that I have a lot of opportunity, but that I am being asked  to choose a path that somehow limits the direction I can travel. In his book, United, Senator Cory Booker sums up many of the feelings I have about my current point in life. He writes, “Your twenties are a decade without clear paths, as if you have been walking for a good while on a well-lit road and now it ends at a dark forest; there are hundreds of directions you could  take, none of them obviously right. Like many, I fond myself standing and staring, hoping for a sign.”
Booker describes the insecurities he felt as he went through law school and thought about the possibilities of his future. He described the challenges that he and his other classmates faced in preparing themselves for the next steps after college, especially when the next steps were not clear. It is reassuring to read Booker’s story and see that many people face the same challenges and insecurities that I go through. I am back in school after graduating with a degree in Spanish and Political Science, and I am pursuing a Masters in Public Administration at the University of Nevada. Despite a good job and the opportunity to pursue further education, feelings of insecurities and a pressure to have a clear plan still well up inside me.
The quote from Booker and his honesty about his fears helps me recognize that my doubts and worries are baseless. I am reminded of a quote from Colin Wright, “the fear of accidentally working too hard to get someplace we don’t want to be can be paralyzing, but it’s an irrational fear.” The message from Booker is to keep moving and be actively engaged in the world, and when we remember the quote from Wright, we see that we can let go of our fears of not ending up where we want to be. That type of fear is not based on the reality of our experiences, and is therefore, irrational. The important thing to remember during periods of doubt is that we are not alone in feeling insecure, and that our actions will ultimately open new doors if we have the courage to push forward through the forest of unclear choices.

An Irrational Fear

Posted on by jabittan
Colin Wright explores our mind and what happens when we work to be fully conscious of our world in his book Considerations. He explores topics related to self-awareness, motivation, and focus in his writing, and his book becomes something like a field guide for fortifying our mind and thoughts for the challenges of life. In his book, he addresses our fear of the future and our fear of spending time working hard for uncertain results. He writes, “the fear of accidentally working too hard to get someplace we don’t want to be can be paralyzing, but it’s an irrational fear.” When we take steps to grow and improve, doors will open for us, and our hard work will land us in places we could never have expected.

 

Wright uses this quote in a section exploring our growth and our ever evolving future. It is not always clear what opportunities will be presented to us and how we will have a chance to grow or benefit from those opportunities. We often have a desire to place ourselves on a path where our hard work can be clearly recognized and rewarded, but this almost never happens. Being flexible and allowing our lives to pivot gives us a greater ability to navigate the shifting path in front us, and gives us an opportunity to apply our hard work to receive benefits in the future, even if we don’t know what they will be.

 

I have struggled to remember Wright’s philosophy, but it has become even more important for me now. I am returning to college and face a potentially very  foggy path. If I act out of fear and make decisions to move forward based on my fear, then I will never fully apply myself, and I will never prepare myself for the uncertain path ahead of me.  By recognizing the uncertainty and at the same time fully engaging myself in my efforts, then I can be sure that my hard work will create new avenues for me. Combining that hard work with flexibility and a willingness to shift direction will ensure that I arrive in a place where I am satisfied with what I do, even if it was not where I originally aimed.