Last week, I proposed that it is fallacious to believe that we can manage change by design and control, coupled with the belief that humans are perfectly rational at all times.
To shed some light on just how rational we humans are, I will look at what Daniel Kahneman has to say on the topic.
Daniel Kahneman is a psychologist who received the 2002 Nobel Memorial Prize in Economics. I am reading his book ‘Thinking, Fast and Slow’ (2011). It is a visual feast – I could not agree more with Kahneman’s thesis.
Firstly, the prevailing economic assumption is that all our thinking on decision making and planning is based on the following assumption: …agents are motivated by pure self interest, are capable of making rational economic decisions even in very complex situations.
There are a few problems with the above statement. Perfect knowledge does not and will never exist, nor will any individual have access to all knowledge. This means that all economic activity implies risk – we make decisions under conditions of uncertainty and limited information, particularly relating to the future.
Secondly, humans are individuals. We do not all like the same things; we are culturally different and so on. Utility function is not a constant but a variable. The other major problem with the statement is that it ignores the reality that humans have inner conflicts. We struggle between short-term and long-term goals (e.g., eating chocolate cake and losing weight) or between individual goals and societal values. Such conflicts may lead to “irrational” behaviour involving inconsistency, psychological paralysis, neurosis and psychic pain. Further irrational human behavior can occur as a result of habit, laziness, mimicry and simple obedience.
Kahneman’s central message is very important – human reason, if left to its own devices, is apt to engage in a number of fallacies and systematic errors. Rational behavior in decision making and planning is a ridiculous premise to build any theory on. Yet, many theories and models are anchored in this fallacy.
Let me give you a very simple example – it is called the law of small numbers – people seem to be very comfortable to draw very important conclusions from little evidence. We are really talking about rules of thumb also known as heuristics. The issue stems from the fact that people are not comfortable with uncertainty, coupled with the fact that as humans we are constantly seeking patterns. We have a tendency (referred to as system one thinking – also known as spontaneous non-reflective thinking) to draw conclusions and have a bias for small non represented numbers.
A good example of this is the ‘Mozart effect’. A study proposed that playing classical music to babies and young children might make them smarter. This study triggered a massive industry of books, CD and videos overnight.
The study by psychologist Frances Rauscher was based upon observations of just 36 college students. However, the test was only conducted once where students who had listened to Mozart “seemed” to show a significant improvement in their performance in an IQ test. Before long, the media got wind of this and people were convinced that listening to Mozart made them smarter. However, in 2007 a serious and rigorous extensive study was conducted by the Ministry of Education and Research in Germany, they concluded that the phenomenon was “nonexistent”.
If we think of this, we seem to do this all the time. We are prone to generalizations and biases. The amazing fact is that we actually believe this stuff and act on it. The risk is huge, particularly if we are going to build a discipline like change management around very fragile theory and assumptions.
We have the capacity to be rational – it is referred to as system 2 thinking, but the problem is that it is slow. We of the human species like fast thinking. We like decisive people, people who think on their feet. We see that as being ‘smart’. Yet, Kahneman proves that is not correct. It is a very important discovery that Kahneman bring to us – if we want to make better decisions in our society and personal lives, we must become aware of the biases built in to us. I seriously recommend this book, we will start to select better leaders and make better decisions.