Last month, I interviewed psychologist Daniel Kahneman, who won the Nobel Prize in economics in 2002 and recently authored the book Thinking, Fast and Slow.
In this video, Kahneman discusses how his thinking about decision-making has changed over the years. Have a look (transcript follows):
Dr. Kahneman: When I started in this line of work some 40 years ago, we somehow believed that imposing your rationality on thinking, not necessarily of individuals, but of organizations, was a feasible objective. I sort of was a great believer in decision analysis and so on and in systematic approaches to decision-making. And I believe that was going to happen. It looked so compelling, the case for decision analysis. And then it turns out that decision analysis is restricted to a few domains, like oil drilling, but it has not conquered the world as I expected it to, so from that point of view, I may have become a little more pessimistic than I was. I really thought that you could improve systems fairly easily of judgment and of decision-making. I still believe they can be improved, but I'm less optimistic about it.
Morgan Housel: So even someone who was spending lots of time trying to improve their decision-making process, at best, they can fine tune around the edges?
Dr. Kahneman: Well you know, I think there's a big difference between individuals and organizations. I think that individuals cannot do all that much to make themselves wiser, so the book that I wrote was never intended to be a self-help book. Organizations, I think, can help themselves improve their decisions. Again, it's not going to be a huge improvement, but if you learn to avoid a few mistakes, and making better decisions is not costly relative to mistakes.
If you adopt systems that will improve your analysis without paralyzing you, that's always a risk when you slow yourself down, then I believe that organizations have an opportunity to impose quality control to ask themselves how they make decisions, to improve the rationality of their meetings. There is an opportunity to improve how meetings are run, because by and large, I think they are run very poorly.
So there are various things that organizations can do; individuals not so much. I would say my best advice to individuals is have intelligent friends, and consult them.