I have been reading a lot lately and I just finished:
”Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets” by Nassim Nicholas Taleb.
http://www.amazon.co.uk/Fooled-Randomness-Hidden-Markets-ebook/dp/B002RI9BH6/ref=sr_1_1?ie=UTF8&qid=1306503313&sr=1-1
I liked it! I’ll give you a couple of practical consequences for us as leaders, let me just briefly explain what I got from the book.
Taleb writes about how our brain is so ill-equipped to handle probabilities. He gives some research reasons that really makes sense, like: when we were hard-wired as human beings (on the African savannah, and even in our recent past as hunter/gatherers) and even living in very simple societies, we needed to be good at making quick choices. Based on “hunches” or “gut feelings” or “emotions”. It’s quick and mostly effective and correct. In a simple society. Now, we are living in a VERY much more complicated society and we still make our decisions based on these emotions. And they are much more often wrong.
We are really very bad at dealing with probabilities. We can’t even imagine “a 50% chance of sun or a 50% chance of rain tomorrow”. Our brain wants to make a decision: Will there be rain or not? It struggles with the probability.
And then logic: Our emotional brain usually gets it wrong, and that is what we base our decisions on. As we read in MANY “get rich fast”-books: “Since all rich people are risk-takers, I postulate if you take more risk you will be rich”.
Problem is: A LOT of risk-takers are not rich. Duh.
Only when we formulate in the following, over-simplified way, most can see it that it is false:
“All the members of the Smith family have red hair – I have red hair, so I must be a Smith”.
Here is an example from my history:
“We hire the best students from university with the best grades”.
“Why?”
“We believe that they will have more success in our company.”
In all the organizations I have worked in or for, we never went back and checked. Did the ones with higher grades have more success than those with lower grades?
Some of you do go back and check – what is the sample you are using? How much of this is statistically significant anyway? How much is chance or luck?
And – here is the Taleb’s point: What about the ones we didn’t hire (mostly ALL the students since we just hire a very small portion). What was the result over 5 years of all the students? Are the ones we hired more successful?
There is no way to know.
And still we insist on hiring the students with the best grades.
The false logic isn’t as easy to spot now:
“All those with success here have good grades – I have good grades, so I must make success”.
I hope you enjoy reading this book as much as I did.