Planning in Uncertain Times
Welcome to our July 2020 IDEA Box blog where we are discussing ‘Planning in Uncertain Times’. We have reviewed books from Nassim Taleb, Philip Tetlock and poker superstar Annie Duke.
This month’s article, which profiles Angela Merkel, is from The New Yorker while the podcast is from the Cautionary Tales series and our video looks at the Eisenhower matrix. We’d love to hear from you so please keep sending in your suggestions. If you enjoy reading this blog, please follow our Twitter and LinkedIn pages where we post additional nuggets of inspiration from the content we have reviewed each week.
The Black Swan: The Impact of the Highly Improbable, Nassim Nicholas Taleb
According to Taleb when the gap between what we know and what we think we know becomes dangerously wide the ‘Black Swan’ is produced. A black swan is a highly improbable event that carries a massive impact. Here are four takeaways:
1. Confirmation bias: If you are a person living in Europe just before the discovery of Australia all the swans you will have seen in your lifetime will have been white. Hence you believe that all swans are white. One unfortunate day you are sent to Australia for stealing half a head of cabbage and you encounter a black swan. Your belief system is shattered. We have a tendency to believe what we see and create unconfirmed generalisations based on this evidence, such as all swans are white.
2. The narrative fallacy: We have a limited ability to look at sequences of facts without weaving them together in an explanatory narrative or forcing them together in a “logical” link. Consider my four year old. She believes that the virtual assistants Siri and Alexa are married and take turns answering her queries based on their childcare commitments. We create stories to explain what we don’t understand.
3. The impact of the black swan on planning: Generally speaking we are good at predicting the ordinary but not the irregular. The question, according to Taleb, is not how often you are right but by how much. Most forecasts overlook large outlandish events.
4. Planning for black swans: The author states; “I am very aggressive when I can gain exposure to positive black swans and when a failure would be a very small movement. I am very conservative when I am under threat from a negative black swan.”
This book is a fascinating study, particularly given the times we are living through. It is available in paperback and audio book.
Thinking in Bets: Making Smarter Decisions When You Don’t have all the Facts, Annie Duke
Drawing on her experience as a poker player, Annie Duke suggests a methodology for making better decisions. Duke believes poker, with its emphasis on time pressured, uncertain bets provides the perfect laboratory for discovering innovative approaches to effective decision making. Here are four takeaways:
1. Challenge your beliefs: The author believes we should be open-minded with those who disagree with us, take responsibility where it’s appropriate and try to counter our own biases. As she puts it; “Confirmatory thought amplifies bias”.
2. Acknowledge uncertainty: Dealing honestly with uncertainty means you will be less likely to succumb to motivated reasoning and so will make more accurate predictions.
3. Update your opinions for new evidence: According to Duke, poker teaches us to update our beliefs in real time as every decision we make has the potential to have material real time costs.
4. Making bets: Duke thinks we should approach decisions like bets. We should be willing to make a falsifiable prediction on an outcome while quantifying our level of uncertainty. The more objective we are, the more accurate our beliefs become; “An unwanted result doesn’t make our decision wrong if we thought about the alternatives and probabilities in advance”.
This is a great read from one of the world’s best known poker players. It is available in paperback and audio book.
Superforecasting: The Art and Science of Prediction, Philip E. Tetlock & Dan Gardner
Tetlock was responsible for the rather depressing discovery that the average expert forecaster is no better at predictions than a dart-throwing chimp. On a more positive note, however, he has also identified a group of forecasters that generally perform better than other primates. This book examines what makes the so-called Superforecasters better. Here are four takeaways:
1. Measurement: The authors quote Bill Gates; “I have been struck again and again by how important measurement is to improving the human condition. You can achieve amazing progress if you set a clear goal and find a measure that will drive progress toward that goal. This may seem pretty basic, but it is amazing to me how often it is not done and how hard it is to get right.”
2. Perspective: Superforecasters take the outside view plus the inside view to create a synthesised view. They then seek different perspectives to challenge the hypothesis and avoid confirmation bias.
3. Active open mindedness: Beliefs are hypotheses to be challenged, not treasures to be guarded. When the facts change we need to avoid ‘belief perseverance’ and react accordingly.
4. The leader’s dilemma: How can leaders reconcile the requirement to be confident and decisive while showing the flexibility and humility required to accurately forecast? The answer, according to the authors, is to think like a Prussian general. Helmuth von Moltke coined the phrase “no plan survives contact with the enemy”. He trusted his team to adapt his plans to the circumstances they faced in the field.
This book is packed full of practical advice to make us better planners. It is available in paperback and audio formats.
The Quiet German: The Astonishing Rise of Angela Merkel, The Most Powerful Woman in the World, The New Yorker, 24th November 2014
For us Irish she’s a bit like the fussy metaphorical friend who insists on collecting you from the party before you get too drunk ….. which might be no harm. Merkel’s East German, Cold War upbringing and training as a scientist provided Germany’s first female chancellor with the skill set required to plan in uncertain times. Here are two takeaways:
- Take an analytical approach: Merkel adopts an analytical approach to problem solving. “She is about the best analyst of any given situation that I could imagine,” according to a senior official in her government.
- Be pragmatic: Life in East Germany made Merkel pragmatic. According to The New Yorker; “being East German gave her advantages: she had learned self-discipline, strength of will, and silence as essential tools”.
Cautionary Tales: You Have Reached Your Destination, Tim Harford
This excellent podcast series was recommended by an IDEA Box reader. In this episode Harford points to our over reliance on computer programs and math formulas to help us plan and navigate our world. Here are two takeaways:
1. Challenge preconceived ideas: Challenge yourself by asking “do I really understand the situation?” When challenged your understanding may be shallower than you realised. Harford calls this “the illusion of explanatory depth”.
2. Debate leads to better plans: Different individuals bring different perspectives. If differing views are aired, considered and debated a better solution may emerge.
The Eisenhower Matrix, Cody McClain
According to Dwight D. Eisenhower; “Plans are worthless, but planning is everything”. He developed a simple matrix which allowed him to focus on what was most important. Here are two takeaways:
1. Arrange and prioritise tasks: Distinguishing between ‘urgent’ and ‘important’ tasks helps us compartmentalise our thoughts and make better decisions.
2. Delegate: Suggesting a better person for the job means improved teamwork and more time for you to complete important tasks.
While sometimes considered an unsophisticated US president, Eisenhower was extremely effective. Had the Cold War period been marshalled by the current incumbent this newsletter would probably be in Russian. This video by Cody McLain explains how the Eisenhower Matrix works.
Fail to plan, plan to fail
Benjamin Franklin contributed that now hackneyed phrase to popular lexicon. One can only surmise what the former slave owner, turned slavery abolitionist, would think of America’s progress on racial integration in the 230 years since his death.
Effective planning may have been a barrier to progress. According to Martin Luther King Jr., writing in The Atlantic in 1967, America’s modern day race issues were partly caused by a chronic failure to plan for the mass migration of black Americans from rural locations to cities. The result was ghettoization, segregation, and discrimination.
That these incidents occurred 25 years before the savage beating of Rodney King, and 52 years before George Floyd’s death highlights just how slow progress has been.
This month our corporate finance manager Johnny, or more accurately his wife Oonagh, has put together a Protest Playlist …… we do like to drag everyone into our little projects!
Thank you for reading our blog. Next month we will be discussing Rest and Recovery.