Earned Value Management (EVM)

This is the fourth and final blog in this series about the human tendency toward misjudgment. In Parts 1, 2, and 3 we learned about Charles (Charlie) T. Munger, Vice Chairman of Berskshire Hathaway and partner of Warren Buffet, and his listing of 25 innate human tendencies toward misjudgment that we harbor. In those three blogs we learned much from him and we will continue that learning in this blog. Charlie was born in 1924 so, at the time of this blog, Charlie he is 94, a wise old man from whom we should learn.

As mentioned previously, I went through each of the 25 “tendencies” that are defined and discussed by Charlie and tried to think about how the tendency could disadvantage or could potentially aid decision making.

Kantian Fairness

The first of the tendencies discussed here is the “Kantian Fairness Tendency.” This does not apply to all people from all cultures around the world, but it certainly does to those you are most likely to be engaged with; those at your place of work. The tendency is that people tend to give and expect fair treatment. It is something innate and reinforced with something learned. An example would be the way people line up to wait and the way they expect others to obey the unwritten rules of waiting in line. People expect to be treated fairly and will wait their turn for that. Applying this tendency to decision-making, people expect the decision process to be fair. If it were to be skewed and unfair, they would hesitate to participate. Being unaware that there is such a bias can be dangerous to the decision-making process. If unfairness could be introduced and carefully hidden, the outcome could be skewed. Any unfairness must be rooted out, no matter how difficult.

Influence-from-Mere-Association

The second tendency covered in this fourth blog is subtle. It is the “Influence-from-Mere-Association Tendency.” Munger points out the problem with this tendency by explaining that if something good happened to us in the past, we will be more influenced by things that were associated with that good event or outcome. Something that is associated with a known good thing is not weighed and measured by the same standards as something that is a stand-alone non-associated item. But we do not really know in all cases that the things we are considering really factored into the previous success at all. If we are told that or assume that or just plain “know that” from company lore, we are on dangerous ground. We would need to know the exact cause and effect chain for the good outcome in the past to be sure we are dealing with a positive associated influence. About the best we can do is be skeptical and challenge things that are presented as associated with previous good outcomes. Our process should require proof of association when association is a factor.

Social-Proof

The third tendency here is one we should all be very familiar with. Munger calls it the “Social-proof Tendency.” You might know it by the name “groupthink” or “the herd instinct.” We need to understand that people tend to act and think as the others around them act and think. This tendency can become an issue in a team or group charged with deciding a crucial issue. Will the members have the strength for independent thought and action or will many of them “go along to get along”? The instinct can be much worse if the situation is a high stress one. The herd must react quickly to stress and the first movement, of the first spooked members, could lead to a stampede. Our decision process has to be sensitive to this and counter it is if needed. Deciders must be coached to avoid being a blind follower and to value independent thought and action. If necessary, the process might have to require mixing the attendance or substituting more independent-minded people.

Contrast Mis-reaction

Another powerful tendency is also one that can be easily exploited against the process. This is the so-called “Contrast Mis-reaction Tendency.” This can be seen as the reaction toward what is perceived as the lesser of two evils. We have all been taught that it is good to compare and contrast choices; but that is only useful when enough truth is known about the choices. A manipulative manager might use this tendency for mis-reaction by explaining to the deciders that there are two outcomes. The first is Outcome A which is described by the manager in such terms as to leave no doubt this is a terrible choice. The second one is Outcome B, also not good, but which appears to be so much better that A; by contrast, our reaction is a mis-reaction toward the one that is automatically more appealing. In this way, the unknowing members of the team see the obvious contrast and are drawn to the outcome favored by the manager while, to them, the whole process appears above board. Our process must be made to present all the choices and to treat them factually, so an uninfluenced choice is made. A good decision-making process does not make false contrasts.

There is not enough time to cover all the tendencies fairly. To do that, you should attend a Humphreys & Associates workshop to explore the entire subject of decision making.

Crucial Decision

In closing, I am going to postulate a situation where the authority to make a crucial decision is assigned, in a high stress situation, to a weak “groupthink team” with a strong leader who has a bloated opinion of himself. The team has been shown some very limited choices, some of which have been described as distasteful ones. The leader is in denial and trying to avoid loss. He wants to force a quick decision. How do you rate the chances of this scenario yielding a good well-considered decision, now that you can see the underlying tendencies to misjudgment?

Tendency Toward Misjudgment – Part 3

Are Your People Being Manipulated?

In part 1 and part 2 of this topic we learned about Charles (Charlie) T. Munger, Vice Chairman of Berskshire Hathaway and partner of Warren Buffet, and his listing of 25 innate human tendencies toward misjudgment that we harbor. In those two blogs we started to learn from him and we will continue that learning in this blog. Charlie was born in 1924 so, at the time of this blog, Charlie is 94, a wise old man from whom we should learn.

As mentioned in Parts 1 and 2, I went through each of the 25 “tendencies” that are defined and discussed by Charlie and tried to think about how the tendency could disadvantage or could potentially aid decision making.

Is there a possibility that people in your decision-making processes are being manipulated? Have you ever been manipulated and known it? Have you ever been manipulated but didn’t know it? Of course, that question can only be answered by thinking back now; if you didn’t know it then, maybe you can see it with hindsight.

The Future of the Industry

Very recently a representative from a company called our leadership and asked for some help with gaining knowledge about the future of our industry. We are in the same industry and compete sometimes, so it seemed odd that this was happening. Along with the request for a favor came an offer; an offer to attend a session with others of their clients and associates on the future of the industry during which we would be given the chance to make even more valuable inputs.

What was going on? What a massive ego-stroking effort. I think it was application of the Ben franklin effect. Simply stated in Franklin’s own words about a situation where he had an opposition figure he needed to deal with, “Having heard that he had in his library a certain very scarce and curious book, I wrote a note to him, expressing my desire of perusing that book, and requesting he would do me the favour of lending it to me for a few days. He sent it immediately, and I return’d it in about a week with another note, expressing strongly my sense of the favour. When we next met in the House, he spoke to me (which he had never done before), and with great civility; and he ever after manifested a readiness to serve me on all occasions, so that we became great friends, and our friendship continued to his death.” In this story notice the use of the words “serve me.” Just asking for and receiving the smallest favor from the man changed the man’s attitude toward Franklin.

Enhancing Opinions

It can be analyzed like this: asking someone at work, with whom we may be opposed or with whom we are ‘on-the-outs’ can tell them that we consider them to have something valuable that we do not have, and we need. It might be made to sound as if they have more information, more under-standing, more ability. If they respond positively and give us something as slight as their time and attention, we stand a chance of enhancing their opinion of us because they then cannot see us as someone simultaneously unworthy and worthy. They just saw us as worthy of their time and atten-tion, so obviously we recognize and have acknowledged their value.

How does this play into decision-making? You need to be aware of the dynamics of any situation and to watch out for the subtle ways that influence can be used to maneuver a decision to the spot desired by someone or some faction. You need to be especially watchful if the person or faction doing the maneuvering is one you believe to not have the best interests of the project at heart.

More Tendencies

Let’s cover more of the tendencies and carry on our discussion about developing a sound decision making process farther. Please note that Charlie Munger named these tendencies, and sometimes I think he made up words that do not sit well with Microsoft spell checking tools.

Tendency #9

Tendency #9 is the one just discussed as the Ben Franklin effect. Munger named it the “Reciprocation Tendency.” It is the tendency to reciprocate favors and disfavors and can be a strong subconscious motivator. If the person being manipulated by Franklin had thought, “There’s that wily Ben again trying to win me over by asking me for help,” the ploy would not have worked. It must be subconsciously received. Isn’t this tendency why procurement departments prohibit buyers from taking favors from sellers? Judges do not associate with defendants. That is a procedural way to stop the potential for misuse of the tendency.

Tendency #12

Tendency #12 could be easily related to the Ben Franklin effect. Munger calls this the “Excessive Self-regard Tendency.” We have all known someone who has a very highly inflated opinion of themselves and we may even have seen the risk in that. This person can, and often does, misjudge his/her own knowledge, competence, capability to the high side. These people choose to associate with people like themselves, and they definitely are partial to their own ideas and conclusions. These people also can be negatively motivated when provided with a counter argument. They are dangerous in decision making because they may not be motivated by facts. They may just be on that personal voyage known as the ego trip. You could even worry that someone else has used the Ben Franklin ploy to get this ego-challenged person to align with this thinking.

Tendency #13

Tendency #13 may align with #12 since it is Munger’s “Over-optimism Tendency.” This is the human tendency to err on the side of optimism when thinking about the future, the work required, and the outcomes possible. For this person there is no time spent better than time walking down the primrose path trying out their new rose-colored glasses. There are so many opportunities for optimism to cause damage on a project, it is sobering. An overly aggressive schedule or budget that is seen as do-able is not going to work. A defined product or set of tasks that would be very hard to achieve could be seen as not-that-tough with the disastrous outcome you would expect. Your deci-sion-making process should force a way to look at facts realistically. Quickly committing to the impossible would be a death warrant. Also, a decision-making process should avoid the potential that an overly optimistic person is also one who has excessive self-regard. Using experts or others, who are not going to have to live with the decisions, can help bring reality into the process. Don’t you go to the doctor to hear the truth?

Conclusion

This is the third blog on the topic of Munger’s human tendencies toward misjudgment. Analyses like these blogs can be helpful to us at Humphreys & Associates in our support of clients and in our formulation of training materials. Hopefully this information has started you or helped you on your way to creating or beefing up a process for decision making that curbs or circumvents these human tendencies.

Review:
EVM Training – Decision Making & Charlie Munger – Part 1
EVM Training – Decision Making & Charlie Munger – Part 2

Tendency Toward Misjudgment – Part 2

Tendency Toward Misjudgment

In part 1 of this topic we learned about Charles (Charlie) T. Munger, Vice Chairman of Berskshire Hathaway and partner of Warren Buffet and his listing of 25 innate human tendencies toward misjudgment that we harbor. I went through each of the 25 “tendencies” that are defined and discussed by Charlie and tried to think about how the tendency could disadvantage or could potentially aid decision making.

Decision-Making is Critical

Humphreys & Associates emphasizes in its EVM training material that the process of decision-making is critical, and I was greatly pleased to learn that Charlie thought that same way. In the first part of the blog we discussed just two of the list of tendencies Munger provided. It appears we humans are fraught with innate tendencies that, if not blocked, can lead us to make a misjudgment. A misjudgment would be a wrong decision in terms of this blog. With all that follows in the blog about misjudgment, we are trying to discern a sound process for decision making, with tools like decision trees, that can help avoid or counter the influences of the counterproductive tendencies. Developing your decision-making process should involve findings tactics that help you avoid or defeat or neutralize these tendencies in your processes.

Liking/Loving Tendency

Tendencies #2 and #3 are total opposites but very much related. Tendency #2 is called the “Liking/Loving Tendency.” It should be familiar to us all. The foundational notion is that people seek affection and approval. Maybe not all people do this, but it is a basic human tendency and we believe that most people have it. This tendency can be a problem when it gets in the way of rational thinking; for example, if people on your team ignore faults of people they like then how will they fairly evaluate proposals floated by those they like? What about when they favor the products, actions, or ideas of those they like? People may not even consciously understand the underlying bias is operating in any given situation, so we need to find a way to circumvent this tendency when we are processing a decision. We need to make a neutral playing field in order to get a fair evaluation.

Disliking/Hating Tendency

Tendency #3 is the opposite of that. It is the “Disliking/Hating Tendency” that can motivate people to ignore or devalue the works or opinions or ideas of those they dislike simply because they do not like the person. This tendency can be strong enough to lead to distortion of facts or judgment. Maybe you have worked with someone that you have strong negative “feelings” about. Can you remember that and imagine if you had that bias operating in a decision-making environment? Maybe the negative tendency toward bias would be operating below the conscious level just far enough to be influencing them, but without their understanding. They sincerely think they do not like the idea and that has nothing to do with the person posing the idea. Our problem is to devise a decision-making process that can work in the face of such underlying, and perhaps invisible, motivations.

Doubt/Avoidance Tendency

Tendency #4 is unrelated to those two. It is the “Doubt/Avoidance Tendency.” That is our tendency to avoid being in doubt and our penchant for moving to certainty. This can be a powerful motivator to move to a quick decision; perhaps before all the homework of deciding has been accomplished. It is human nature to make quick decisions and certainly we can understand that hasty decisions may not be the best decisions. This tendency can potentially rise to the level where it creates irrationality and the pressing need to remove doubt. Unfortunately, this tendency becomes stronger when we are under pressure; that means just when we need to be at our level-headed coolest and most deliberative, unfortunately, our motivation is to just make a decision and get on with it to rid ourselves of doubt. Again, our challenge is to not let this tendency dictate our decision-making process. A little pressure can be a good thing. Too much pressure, along with the unchecked tendency to want to move quickly away from doubt, can be ruinous.

Curiosity Tendency

Perhaps tendency #6 can help us here. This is a beneficial tendency of human nature; the tendency to be curious. Charlie Munger simply called it the “Curiosity Tendency.” It is our nature to be curious and that curiosity has brought humankind from the cave dwellers to the high-rise dwellers. If we can harness that tendency in our decision-making process, maybe it will help counter some of the negative and damaging tendencies. Maybe our curiosity will want to lead us to getting the facts before we decide emotionally.

Hopefully you get the idea now. The first two blogs together have not covered the entire list of tendencies; far from it. When things permit, the rest of the list developed by Charlie Munger will be presented here in terms of the process of decision-making. Meanwhile you can certainly look at your decision-making processes at work and maybe even at home to see if you have planned to subvert these tendencies.

Review EVM Training – Decision Making & Charlie Munger – Part 1