On Day 9 and 10, we studied the art of Decision Making with Associate Professor of Decision Sciences and Director of the INSEAD Abu Dhabi campus, Miguel Lobo.
Why study Decision Making ? Most business (and life) decisions are necessarily made under conditions of uncertainty. In business – as in life – we often avoid hard data and rely on simple rules and on intuition to make judgments and decisions. This is especially the case when we have insufficient information and when decisions need to be made quickly, as happens when managers face a turbulent and fast-changing business environment.
Humain Brain Vs Computer: Who wins? Miguel opened the session with the following question: Why is there such an emphasis on human judgment while computers are faster, more efficient and less prone to mistakes?
Computers base their answers purely on data- i.e. past numerical experience. The problem with this approach is that it doesn’t offer insights on untested events. In such situation, the human brain is better equipped – faster and more efficient- and it takes a more sensible approach.
Below are some of key points we learnt about the human brain over these two days:
The difference between cognitive and subconscious thinking. The front of the brain is for cognitive thinking. It is a process of thought which the being is aware of doing. This type of thinking is limited as it only allows one thought at a time. The back of the brain is the subconscious. It is a process of thought which the being is unaware of doing. The subconscious can gather a large number of information and is capable of two or more thoughts at a time. It transmits its final result through feelings (gut feelings). For this reason, “Feelings are information and have value in that way .” said Miguel.
Human brains can get trapped. Miguel proved this to us. Prior to his session, we had to fill in a survey on judgment. In the survey, Miguel had tricked us in many ways to illustrate the several cognitive biases of our human brains. Many simple rules that people use to make judgments and decisions lead to systematic and predictable errors, we were told. These are the several cognitive biaises:
- Anchoring: Estimation is often a process of anchoring on a salient number and adjusting up or down. For example, we tend to anchor on recent past (present bias).
- Availability: Events are judged more likely to the extent that they are vivid or easily recalled. A typical example: I was thinking of Jeff when the phone rang and it was him! Telepathy exits! while in fact I had been thinking of Jeff many times and he did not call and I wasn’t thinking of Jeff and he called.
- Representativeness: Judging by similarity or stereotypes.
- Overconfidence: For example, 82% of drivers feel they are in top 30% safe drivers.
Thank you Miguel for this very enlightening session!
By Hugo, Coen, Nicola, Ali & Shaikha