The Art and Science of Decision-Making

1. The Art and Science of Decision-Making May 5, 2014 Robert S. Duboff Robert.Duboff@hawkpartners.com 617-576-4701

2. Appropriate Use of Information • Determine drivers • Establish norms • Ability to set up radar for anomalies • Delineate triggers and influences

3. Distortions or Deceptions • Over optimism • Loss aversion • Champion bias • “Sunflower management” (‘homophily’) Source: McKinsey.

4. What Causes Mistakes in Decisions? • Resistance to answer changing • Anchoring • Simplification errors • Overconfidence/above average • Change/inattentional blindness • Information overload • Framing • Hindsight bias • Memory problems (“memory is more a reconstruction than a reproduction”) • Wrong causes (“presumptions overwhelm evidence”)

5. Mistakes Types • Misled by… • “Fact” • Value • Fooled by… • Senses • Someone (else) • Self • Bad decisions vs. wrong decisions

6. Predicting the Future… • A major source of mistakes/errors/bad decisions • Sources of error… • Trend lines • Prior information • Lack of thought (or imagination) re possibilities • Black Swan, Perfect Storm and other mysteries • “Over optimism” and “illusion of control” – “compounded by the limits of human imagination”

7. Art vs. Science “Both domains attempt to bridge the gap between our minds and the world and both rely on their practitioners repeatedly making mistakes. Artists take as central what scientists (and the rest of us) usually sideline as much as we can: that reality as we know it is inevitably askew, retracted through an individual and idiosyncratic mind always slightly out of step with the world.” - Kathryn Schulz