Common Change Management Errors (2 cont. i)

Five Main Reasons We Failed To Anticipate

According to Nassim Taleb (2007), there are 5 main reasons (errors of confirmation, narrative fallacy, human nature, distortion of solid or silent evidence and tunnel vision) we fail to see unexpected events:

i) errors of confirmation or problems of conductive knowledge or learning backward - we focus on experience and preselected observations, and then generalize from them to the unseen; we tend to look at what confirms that knowledge. This is knowledge gained from observation. We hope we can know the future with some certainty, given our understanding of the past. Yet what we learn from the past can turn out to be irrelevant or false for the future, so we need to be careful of our habits and conventional wisdom. Our tendency to generalize can lead to dangerous stereotyping and discrimination.

"...making a naive observation of the past as something definitive or representative of the future is the one and only cause of our inability to understand..." the future

Nassim Taleb, 2007

"...we are all motivated to maintain a sense of psychological safety by nurturing a positive self-image, by looking at the world as a knowledgeable and predictable place, and by avoiding risk. This can lead to an overestimation of the self and a habit of attending only to information that bolsters our existing beliefs..."

Boris Groysberg et al, 2010

Remember the statement of Captain Smith of the Titanic about his exemplary safety record before the fateful journey!!!!!!

This is linked with domain specificity and naive empiricism

- domain specificity - means that we react to a piece of information based on the framework that surrounds it and its social-emotional situation, rather than logical merit

- naive empiricism - we have a natural tendency to look for instances to confirm our perceptions, ie

"...take the past instances that corroborate your theories and treat them as evidence......it is misleading to build a general rule from observed facts......sometimes a lot of data can be meaningless; and at other times one single piece of information can be very meaningful......once your mind is inhabited with a certain view of the world, you will tend to only consider instances proving you to be right. Paradoxically, the more information you have, the more justified you will feel in your views..."

Nassim Taleb, 2007

This asymmetry of knowledge is important as it provides insight into the unpredictability of the world, ie all pieces of information are not of equal importance.

ii) narrative fallacy - we believe that stories will display distinct patterns; we fool ourselves with stories and anecdotes. It is

"...our predilection for complex stories over raw truths. It severely distorts our mental representation on the world; it is particularly acute when it comes to a rare event......addresses our limited ability to look at sequences of facts without weaving an explanation into them, or, equivalently, forcing a logical link, an arrow of relationship, upon them. ... They make them all the more easily remembered; they help them make more sense. Where this propensity can go wrong is when it increases our impression of understanding..."

Nassim Taleb, 2007

Furthermore,

"...the more random information is, the greater the dimensionality, and thus the more difficult to summarize. The more you summarize, the more order you put in, the less randomness. Hence the same conditions that make us simplify pushes us to think that the world is less random than it actually is..." and the less you are able to predict the future and handle unexpected events

Nassim Taleb, 2007

Remember: facts do not change but people's perceptions and/or interpretation of the facts do, ie perception distortion. Furthermore, we are better at explaining than understanding.

iii) human nature (we are programmed to handle the expected rather than the unexpected; how our emotions get in the way of a reference)

We have a tendency to reduce information into categories and store it in our brains, rather than looking outside our information set, judgments and explanations. This is partly explained biologically, as it is expensive (energy wise) to put information into our brain, costly to store it and costly to manipulate and retrieve it. Furthermore, parts of the brain are important in distinguishing instantaneous, emotional reactions (limbic) from thinking responses (cortical).

Also, fragrances, like scent, go straight to the limbic system and have an immediate effect on mood. It is like music & taste, ie it reminds us of something, somewhere, etc and make sure feel better or worse

Our working memory has limited holding capacity, eg we have difficulty remembering telephone numbers that exceed seven digits. Thus compression and patternising of information, ie dimension reduction, is vital to the performance of conscious work. We selectively remember facts about the past that suit our point of view and conveniently forget other facts that challenge our views.

Both causality and narrativity are symptoms of the dimension reduction.

- causality suggests a chronological dimension that leads to the perception of the flow of time in a single direction. Our emotional makeup is designed for linear causality. With relationships between variables are clear, crisp and constant; yet the world is not - it is more non-linear, asymmetrical in its relationships and consequences. Furthermore, the appearance of busyness reinforces the perception of causality - the link between results and one's role in them.

- narrativity allows us to see past events in a more predictable, more expected and less random way.

Thus memory is dynamic and not fixed, static or constant. This allows for perception and retrospective distortions, ie

"...memory is more of a self-serving dynamic revision machine: you remember the last time you remembered the event and, without realizing it, change the story at every subsequent remembrance. So we pull memories along causative lines, revising them involuntarily and unconsciously......a memory corresponds to the strengthening of connections from an increase of brain activity in a given sector of the brain - the more active, the stronger than memory......because your memory is limited and filtered, you will be inclined to remember those data that subsequently match the facts..."

Nassim Taleb, 2007

Our happiness depends more on the number of instances of positive feelings rather than their intensity. This is called the positive effect. For example, in businesses the accounting period is too short to reveal whether or not performance is good or otherwise; yet management is judged on the short-term indicators.

"...But we do not live in an environment where results are delivered in a steady manner..."

Nassim Taleb, 2007

Furthermore,

"...humans will believe anything you say provided you do not exhibit the smallest shadow of diffidence......they can detect the smallest crack in your confidence..."

Nassim Taleb, 2007

iv) distortion of solid or silent evidence (we see what we want to see, ie these mis-perceptions become our reality, eg how we are selective in our understanding of history)

"...silent evidence is what events use to conceal their own randomness..."

Nassim Taleb, 2007

A subset of distortions is bias, ie

"...the difference between what you see and what is there..."

Nassim Taleb, 2007

We like to categorize things but don't consider the fuzziness of the boundaries between categories, ie

"...categorizing always produces reductions in true complexity......any reduction of the world around us can have explosive consequences since it rules out some sources of uncertainty......underestimate the impact of the highly improbable..."

Nassim Taleb, 2007

Fuzziness is the very essence of uncertainty.

Thus we assume that the world we live in is more understandable, more explicable, less irregular and more predictable than it actually is. In fact,

"...we are just a great machine for looking backward......humans are great at self delusion..."

Nassim Taleb, 2007

Yet history runs forwards, not backwards!!!

Silent evidence can cause a distortion at both ends of the spectrum, ie an overestimation or an underestimation.

Lucid fallacy refers to the elements of uncertainty that we face in real life that have little connection to the ones we encounter in the classroom. Computable risks calculated in the classroom are largely absent from real-life.

v) tunnel vision (we focus on a narrow range of well-defined sources of uncertainty; the difference between what people actually know and how much they think they know; the neglect of outside/external sources of uncertainty)

"...we are too narrow minded a species to consider the possibility of events straying from our mental projections on matters internal to the project to take into account external uncertainties, the unknown unknown..."

Nassim Taleb, 2007

Many important breakthroughs, such as computers, Internet, laser were unplanned, unpredicted and initially not appreciated. Despite our improved ability to use predictive models, our success rate in forecasting the future is not very good.

Furthermore,

"...we are demonstrably arrogant about what we think we know "we have a built-in tendency to think that we know a little more than we actually do" This can get us into serious trouble..."

Nassim Taleb, 2007

We suffer from epistemic arrogance, ie as our knowledge grows, so our confidence increases significantly. This can result in over-confidence which causes an increase in confusion, ignorance and conceit. In fact

"...epistemic arrogance bears double effects: we overestimate what we know, and underestimate uncertainty, by compressing the range of possibile uncertain states, ie by reducing displays of the unknown......longer the odds, the larger the epistemic arrogance..."

Nassim Taleb, 2007

Furthermore, we have a tendency to favour underestimating the impact of unexpected events. This is more pronounced the further we are away from the event.

A good examples of uncertainty is the impact of technology and Covid-19 (starting 2020). Both are unpredictable in their timing and impacts plus they are changing the way we work and live. One of the impacts from the Covid-19 pandemic is that firms are diversifying away from single-source suppliers. There is a need for a supplier base that is more diverse, responsive and controllable in crisis situations. For example, reducing reliance on China, ie
''...in practice, corporations are likely to seek to make their global value chains (GVCs) more resilient against future pandemics, other natural disasters as well as against growing geopolitical tensions......China......is the dominant supplier of imports to manufacturing in the US, Japan and the European Union......diversification of supply chains (away from China to other Asian economies), attempts to organise production closer to home (eg, regional supply chains within the EU or US), or even reassure production to domestic suppliers..."
Barclays Bank's Annual Equity Gilt study as quoted by Tony Boyd, 2020

 

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