The human mind gets it wrong much of the time

Published in the San Diego Union-Tribune, January 16, 2017

As the San Diego Chargers and Hillary Clinton know all too well, there are no do-overs. I am ready to acknowledge and even embrace the new administration (four days from now), but with my bride, Barbara Bry, deep into her own new political job at the City Council, I needed a final medicinal Oorah — and so I turned to a new book, “The Undoing Project,” by Michael Lewis. It is about Amos Tversky and Daniel Kahneman.

Followers of this column know that if I only get one last meal on this earth and I get to pick anyone to have it with — living or dead — it is Danny boy for sure. While they are often linked as a couple (they were never sure whose idea it was), my nod goes to Kahneman because he is the darker and more troubled soul. He embraced misery and doubt, so naturally I gravitate toward him.

Let me be simple and clear. If you read nothing else the rest of the year, you must read this book. These two giant minds created the industry of rational behavior, how the mind works, data analytics, behavioral economics and ultimately why as human beings, we make so many stupid mistakes and get it wrong much of the time.

Enough said — read this book.

A topic that interests me in the startup racket is the tension between pride and arrogance. I particularly see this in young or first-time CEOs. They are a year into their company, have raised a modest seed round and are now ready (in their minds) for the next slug of capital. How they present their case is a puzzle that has some delicate dance steps.

For insight, I turned to James L. Heskett, Harvard Business School emeritus professor of logistics, who looks at the tension between the role of leadership as a force for change versus leadership as a support for the organization’s culture, its values and behaviors.

Heskett finds a classic case in Lululemon, a company dedicated to fitness, with fanatical employees. After the CEO introduced a fabric that when stretched became transparent, he went on Bloomberg TV and tried to explain it away by saying, “some women’s bodies don’t work for the pants.” Not exactly an elegant statement. The stock tanked, and he lost his job.

He needed to read Kahneman. The obvious right answer is to apologize and immediately fix it. Why do we get it wrong so often? Think about Volkswagen and Wells Fargo. Pride versus arrogance — with a soupcon of crookery and stupidity. Last year, I wrote about white-collar criminals. Why do already very rich people commit high-risk financial crimes? They assume they will not get caught. Pride versus arrogance.

And so our erstwhile startup CEO comes in for an investment. He has to believe in himself and his product and at the same time, exhibit some modicum of humility. First, I explore market acceptance (are the dogs eating the dog food or only sniffing?) followed closely by valuation and financing. And finally I examine the management team and how self-aware they are. Do they know what they don’t know? To that end, I have lately seen a modest uptick in interest from boards of directors for executive coaching.

Now back to Tversky and Kahneman. They talk about cognitive illusions (think of optical illusions in your mind). Even knowing that the water in the desert is a mirage, we walk toward it, hoping maybe this time it is real. Their theme is that it is very difficult to self-correct. Tversky says you must change the environment in which you make the decisions — i.e. avoid autocratic certainty, allow for and encourage disagreement and challenge — and abhor the decision maker who thinks he is infallible and has unbelievable gut instincts. Are you listening?

An example of a failed hierarchy is the relationship between the pilot-in-command in an airplane and the co-pilot. It was sacrosanct that the co-pilot did not challenge the pilot — ever. However, research found that when the co-pilot talks up, there are fewer crashes. (If the plane is upside down, tapping the pilot on the shoulder might indeed be appropriate). That is why the pre-flight checklist is now always done by both of them reading and repeating to the other.

The year has begun. Let’s hope there are no upside down American flags.

Rule No. 492:  It can’t be as bad as you think.

###

Leave a Reply

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>