Strategy. Innovation. Brand.
Hedgehogs, Foxes, and The Future
Not Louise.
My friend, Louise, is a world-class forecaster. I’m trying to figure out how she does it.
Louise and I both volunteered for the Good Judgment Project, a crowd-sourced forecasting tournament for world events. Here’s a sample of the questions we’re forecasting:
When will China next conduct naval exercises in the Pacific Ocean beyond the first islands chain?
When will SWIFT next restrict any Russian banks from accessing its services?
When will Ethiopia experience an episode of sustained domestic armed conflict?
For each question, we get 100 points and a calendar. We distribute the 100 points based on when we expect an event to happen. If we don’t expect the event to happen, we simply place all 100 points beyond the calendar.
Philip Tetlock, who wrote the landmark study, Expert Political Judgment: How Good Is It? How Can We Know?, started the Good Judgment Project to improve forecasting of political events worldwide. Why would we need to improve our forecasting? Because experts are really lousy at it.
In his book, Tetlock studied 28,000 projections made by 284 experts. The results were little better than chance. Computers could do better. Tetlock surmised that crowds might do even better and started the Good Judgment tournament.
The tournament starts anew every year with several hundred volunteers. Louise and I participate in a tournament that started last December. We’ve been forecasting for close to three months. I looked up the standings last week. Louise was number one worldwide. I was number 48.
How does Louise do it? It could be that she’s a fox as opposed to a hedgehog. According to the Greek poet Archilochus, “The fox knows many things but the hedgehog knows one big thing.” Isaiah Berlin popularized the idea in the 1950s with his study of Tolstoy, titled The Hedgehog and The Fox.
So, which is better: a hedgehog or a fox? As with so many things, it depends on what you’re aiming to do. In Good To Great, Jim Collins argues that you need a hedgehog mentality to build a great company. You need to know one big thing and stick to it.
But what if you’re trying to forecast the future? Tetlock argues persuasively that foxes are better than hedgehogs. Why? Here’s how Stewart Brand explains it: “…hedgehogs have one grand theory (Marxist, Libertarian, whatever) which they are happy to extend into many domains, relishing its parsimony, and expressing their views with great confidence. Foxes, on the other hand are skeptical about grand theories, diffident in their forecasts, and ready to adjust their ideas based on actual events.”
It’s probably fair to guess that Louise is a fox. She doesn’t have one grand theory that explains everything from SWIFT financial transactions to Chinese naval maneuvers. She’s also flexible in her thinking. She’s willing to pick ideas from different sources and change her position if the evidence warrants. She gathers feedback and uses it to adapt and adjust.
In Tetlock’s studies, foxes outperform hedgehogs by a wide margin – in forecasting, though perhaps not in building great companies. Hedgehogs on the other hand, “…even fare worse than normal attention-paying dilettantes.”
Louise and I – and other volunteers in the Good Judgment Project – are probably normal attention-paying dilettantes. We follow current events but we don’t have grand theories that explain everything. In some cases, I suspect that Louise doesn’t know what to think. But she does know how to think. Like a fox.
Just Add Women
You doubt my effectiveness?
Germany is poised to join the 30 Percent Club. Beginning in 2016, women must hold at least 30 percent of board seats at large, public companies. Germany will join other countries like Norway, France, Spain and the Netherlands in mandating female representation on boards of directors.
Will it work? It depends on what the goal is. Norway began the trend in 2006, mandating 40% representation. As The Economist puts it, “…[the] law has not been the disaster some predicted.” Not exactly a ringing endorsement but the magazine suggests that the real benefit may be a change in attitude.
The Financial Times appears a bit more optimistic: “Early analysis appears to show that quotas work and have been highly successful across Europe.” Fortune appears less sanguine, “a close look at the results of these quotas – and of Norway’s in particular, which have been in effect the longest – shows that the results might not be all that their backers intend.” Fast Company is more positive.
The articles I’ve cited here seem to have different views of what success means. If success is defined as:
- More female representation on boards, then the quotas work.
- Better financial and stock performance, then the results are decidedly mixed.
- Fewer layoffs, then the quotas seem to work.
Unfortunately, none of the articles discuss why boards with women might perform better. I’ve found two different reasons in the literature that suggest that women can bring important qualitative differences to board discussions and decisions.
First, women appear to make better decisions about risk, especially under stress. The research comes from Mara Mather and Nicole Lighthall who study the effects of stress on decision-making. They found that stress changes the way we select alternatives and accentuates differences between men and women. Bottom line: “…stress amplifies gender differences in strategies during risky decisions, with males taking more risk and females less risk under stress.”
Why would that be? Writing in the New York Times, Therese Huston argues that it may be empathy. We generally view women as more empathetic than men. Under stress, Huston writes, women “… actually found it easier than usual to empathize and take the other person’s perspective. Just the opposite happened for the stressed men — they became more egocentric.”
The second major reason stems from the impact of women on group behavior and effectiveness. MIT reports that the “tendency to cooperate effectively is linked to the number of women in a group.” In The Atlantic, Derek Thompson writes that group intelligence is similar to general intelligence in an individual. General intelligence suggests that an individual who is good at one thing is likely to be good at other things as well. Similarly, a group that’s good at one thing is likely to be good at other things, too. This is dubbed collective intelligence, which varies from group to group.
What factors contribute to collective intelligence? It’s not the average intelligence of the people in the group. Nor is it the intelligence of the smartest person. Thompson notes that we can rule out many other things as well, including motivation, cohesion, and employee satisfaction.
So what makes a group collectively intelligent? Average social sensitivity. It’s the ability to read between the lines and understand what someone is really saying. Thompson writes, “social sensitivity is a kind of literacy, and it turns out that women are naturally more fluent in the language of tone and faces than the other half of their species.”
So women make better decisions in stressful situations. Boards have to deal with high levels of stress. Women also make groups more effective. Boards, of course, are groups of people trying to reach effective decisions. The debate on women on boards was generally framed by the question: Why would we put women on boards? With our new understanding, the proper question is: why wouldn’t we?
(The New York Times also has an interesting on group effectiveness and female participation. Click here.)
Brian Williams and Core Priorities
Values clarification.
In their book Decisive, Chip and Dan Heath write about the need to honor our core priorities when making decisions. They write that “An agonizing decision … is often a sign of a conflict among ‘core priorities’ … [T]hese are priorities that transcend the week or the quarter … [including] long-term goals and aspirations.”
To illustrate their point, the Heath brothers tell the story of Interplast*, the non-profit organization that recruits volunteer surgeons to repair cleft lips throughout the world. Interplast had some ”thorny issues” that caused contentious arguments and internal turmoil.
One seemingly minor issue was whether surgeons could take their families with them as they traveled to remote locations. The argument in favor: The surgeons were volunteering their time and vacations. It seems only fair to allow them to take their families. The argument against: The families distract the surgeon from their work and make it more difficult to train local doctors.
The argument was intense and divisive. Finally, one board member said to another, “You know, the difference between you and me is you believe the customer is the volunteer surgeon and I believe the customer is the patient.”
That simple statement led Interplast to re-examine and clarify its core priorities. Ultimately, Interplast’s executives resolved that the patient is indeed the center of their universe. Once that was clarified, the decision was no longer agonizing – surgeons should not take their families along.
I thought of Interplast as I read the coverage of Brian Williams’ situation at NBC. In much the same way as Interplast, NBC had to clarify its core priorities. The basic question is whom does NBC serve? Is it more loyal to Brian Williams or to its viewing audience?
In normal times, NBC doesn’t have to answer this question. It can support and promote its anchor while also serving its audience. In a crisis, however, NBC is forced to choose. It’s the moment of truth. Does the company support the man in whom it has invested so much? Or does it protect its credibility with the audience?
Ultimately, NBC sought to protect its credibility. I was struck by what Lester Holt said on his first evening on the air: “Now if I may on a personal note say it is an enormously difficult story to report. Brian is a member of our family, but so are you, our viewers and we will work every night to be worthy of your trust.”
Holt’s statement suggests to me that NBC’s core priority is credibility with the audience. I certainly respect that. It also struck me as being very similar to the question Interplast asked itself.
Clarifying your core priorities is never a simple task. Indeed, it may take a crisis to force the issue. But once you complete the task, everything else is simpler. As my father used to say: Decisions are easy when values are clear.
Here are links to two articles from the New York Times that report on how NBC executives reached their decisions regarding Brian Williams. (Click here and here)
*Interplast has been renamed ReSurge International. Its website is here.
Good Decisions, Bad Outcomes
Bad Decision or Bad Outcome?
The New England Patriots won the Super Bowl because their opponents, the Seattle Seahawks, made a bad decision. That’s what millions of sports fans in the United States believe this week.
But was it a bad decision or merely a bad outcome? We often evaluate whether a decision was good or bad based on the result. But Ronald Howard, the father of decision analysis, says that you need to separate the two. You can only judge whether a decision was good or bad by studying how the decision was made.
Howard writes that the outcome has nothing to do with the quality of the decision process. A good decision can yield a good result or a bad result. Similarly, a bad decision can generate a good or bad outcome. Don’t assume that the decision causes the result. It’s not so simple. Something entirely random or unforeseen can turn a good decision into a bad result or vice versa.
But, as my boss used to say, we only care about results. So why bother to study the decision process? We should study only what counts – the result of the process, not the process itself.
Well, … not so fast. Let’s say we make a decision based entirely on emotion and gut feel. Let’s also assume that things turn out just great. Did we make a good decision? Maybe. Or maybe we just got lucky.
During the penny stock market boom in Denver, I decided to invest $500 in a wildcat oil company whose stock was selling for ten cents a share. In two weeks, the stock tripled to 31 cents per share. I had turned my $500 stake into $1,500. I was a genius! (There’s a touch of confirmation bias here).
What’s wrong with this story? I assumed that I had made a good decision because I got a good outcome. I must be smart. But, really, I was just lucky. And you probably know the rest of the story. Assuming that I was a smart stock picker, I re-invested the $1,500 and – over the next six months – lost it all.
Today, when I evaluate stocks with the aim of buying something, I repeat a little mantra: “I am not a genius. I am not a genius.” It creates a much better decision process.
I was lucky and got a good outcome from a bad decision process. The Seattle Seahawks, on the other hand, got the opposite. From what I’ve read, they had a good process and made a good decision. They got a horrendous result. Even though their fans will vilify the Seahawks’ coaches, I wouldn’t change their decision process.
And that’s the point here. If you want good decisions, study the decision process and ignore the outcome. You’ll get better processes and better decisions. In the long run, that will tilt the odds in your favor. Chance favors the thoughtful decision maker.
What makes for a good decision process? I’ll write more about that in the coming weeks. In the meantime, you might like two video clips from Roch Pararye, a professor at the University of Pennsylvania, who explains why we separate decision processes from decision results. (Click here and here).
Inverting The Benefits Ladder
Enjoying my benefits.
I’ve just passed a major birthday, which qualifies me for a number of government benefits, including social security and health care. While I appreciate the benefits, I also have to wonder: why do so many government benefits go to old people as opposed to young people?
The benefit system helps people – like me – who have already had plenty of opportunities. I’ve had years to work and save money for my retirement. I know that not everyone has had the same opportunities. I worked hard but I also got lucky. I know that many other people weren’t so lucky.
And that’s my point. Instead of paying people after they’ve retired, let’s invert the benefits ladder and invest in people from the beginning. Here’s an analogy – we’re all given small boats at birth. By chance, I got a boat that’s well built and seaworthy. My friend, Chuck, on the other hand, got an unstable, leaky boat. Chuck’s out at sea when his boat starts to sink. That’s OK – as long as he can swim to shore, we’ll give him a pension that will keep him alive.
Wouldn’t it be better to spend the money up front and get Chuck a boat that’s as seaworthy as mine? Note that this doesn’t ensure that Chuck will be successful. He might still get swamped. Luck will still play a role in Chuck’s life. But we’ve shifted the odds. Chuck has a better chance to succeed but he still needs to work hard.
Here’s how an inverted plan might work. When a child is born – let’s call her Susie — she automatically gets a bank account. Each year, the government puts, oh say, $10,000 in it. No one can touch the money until Susie turns 18. She then has $180,000, which she can use to start a business, go to college, learn a trade, or be a ski bum. It’s up to her. She can ask her parents for advice or not – it’s her money.
The government then says, in effect, “OK Susie, we helped you get off to a good start – now it’s up to you.” The government might offer some savings plans – somewhat like social security – but they’re voluntary. Susie is now launched. She has to make her own choices and take responsibility for her own welfare. She has every incentive to work hard and invest wisely.
I’m attracted to an inverted plan because it touches on so many American values. We say that all men (and women) are created equal. The inverted plan gets us all off on equal footing regardless of the accidents of birth. We’re also an individualistic culture and admire people who pull themselves up by their own bootstraps. The inverted plan gives people better bootstraps and the incentive to pull hard.
The plan also helps us resolve difficult issues about who deserves help. We’re a generous country. Indeed, according to the World Giving Index, America is the most charitable country in the world. But we like to give to those who are deserving. Deciding who deserves help is a thorny question that gets tangled up in questions of age, gender, social class, geography, ethnicity and so on. It also leads to never-ending debates about the “safety net” that may or may not have turned into a “…hammock that lulls able-bodied people to lives of dependency and complacency…”
My plan resolves the questions of the “deserving poor” – we simply agree that all children are deserving. Grown-ups, on the other hand, can take care of themselves. All we need to do is to protect them against the failure to launch.
So, I suggest that we consider an inverted plan. Let me know what you think. In the meantime, I’ll be lying in a hammock enjoying my government benefits.
My Social Media
