The 2-Minute Thought: Like it today? Wait till tomorrow

We are unreliable inconsistent decision makers, according to an article from this month’s Harvard Business Review by Daniel Kahneman, Andrew M. Rosenfield, Linnea Gandhi, and Tom Blaser.  We contradict the principles we believe in, we contradict our own prior judgments, and we often do so without realizing it. 

The authors note that when software developers were asked on two separate occasions how long it would take to complete the same task, their answers differed by an average of 71%.  And one study found that pathologist diagnoses of the same biopsy were consistent just 61% of the time.

“The unavoidable conclusion,” they say, “is that professionals often make decisions that deviate significantly from those of their peers, from their own prior decisions, and from rules that they themselves claim to follow.”

We understand that judges, doctors, executives, loan officers, and investment analysts come to different conclusions when presented with identical information.  Since we rely on them to use general principles and experience – not unambiguous rules – a difference in views is acceptable.

But it is less tolerable to think about the same practitioner making inconsistent medical diagnoses with the same data.  It is also downright disheartening to think that stock valuations, real estate appraisals, and sentences for criminals could be affected by totally irrelevant factors like mood, weather, or how hungry we are – and yet there is evidence that they are.

Why is it that our views on a stock can be different on different days even when its valuation metrics haven’t changed much?  Perhaps the ambient tone of the news is different on a given day, or perhaps the other stocks in our portfolio are making us unduly anxious or over-optimistic.  Or perhaps we just need to eat a cookie.

Developing consistent, skilled decision-making takes practice, the article says, but not just any kind of practice.  It comes “through years of practice in a predictable environment, in which actions are followed by feedback that is both immediate and clear.” 

Two examples of this that the authors give are high-level chess and driving.  In both cases, there is consistency at high levels of skill: “Master [chess] players who look at a situation on a chessboard will all have very similar assessments of the state of the game. . . Negotiating traffic would be impossibly dangerous if we could not assume that the drivers around us share our understanding of priorities at intersections and roundabouts.”

The problem is that many of us operate in a world that doesn’t offer clear and immediate feedback or a predictable environment.  Doctors, judges, and investors may not know for years if the decision they made was a good one.  And in some cases, one may never get feedback at all.  As the article points out, a loan officer will never know what happens to the applicant he or she rejects.  Seldom will a company learn about the applicant it didn’t hire.  Without the quick feedback we need in order to learn, it’s all too easy for us to stay blind to how inconsistent we are.