March 31, 2023

Post-rationalization of decisions

We often take subconscious decisions, that we then try to rationalize, by finding or inventing logical arguments.

It is what Daniel Kahneman called "thinking fast". 

The first example comes from marketing, i.e the post rationalization of the buying decision. Studies show that people make decisions subconsciously, after which they try to rationalize them, with logical arguments such as "it's cheaper", or "it's expensive, but the quality is higher", or "it's worth taking care of myself", or "it's the best quality-price ratio", or the infamous "I know I don't need this, but it's on sale".

A similar process is described by Radu Umbres for ethical norms. Apparently, we don't have moral principles from which we derive ethical norms, but instead we have ethical norms, and then we create principles to support these norms. With examples such as: because of the principle that women should have the right to dispose of their own body, we support abortion, but we don't apply the same principle to support surrogate motherhood or prostitution. Similarly, we consider morally acceptable that men should donate sperm, but not women donating ovules.

The 3rd example comes from business.

Although in this area we try to use objective decision-making tools (decision matrix, decision tree, balanced scorecard, Cocomo, risk analysis, etc.), in practice we adjust these tools to fit our intuition. 

20 years ago, when I was a young manager, I built and used a tool for calculating the salaries of staff, using a set of variables such as experience, skills, performance, education, foreign languages, etc. At a certain moment, I went to my boss and told him that I have a problem: the tool suggests to increase the salary of an incompetent colleague. The manager said: a good instrument should help you take the right decisions. If it doesn't, i.e. if the results of the instrument don't match your expected results, then you need to recalibrate the instrument. Accordingly, I adapted the tool by introducing a new "over-ride" variable to get the desired result.

Same happened during my PhD, when I discovered that an instrument is "correct" if its results are useful. Utility is the best measure of the scientific validity of a tool. In fact, my research consisted of designing and calibrating a set of useful tools for the management of complexity.

The same subjectivity affects all tools, including those for deciding investments or acquisitions. I recently heard people talk about "gut feeling" in investment decisions. The "gut" factor is in fact embedded in the whole decision process. Business tools are always recalibrated to produce desired results. 

Even when we over-rationalize the decision process, when we design tools that are highly objective, when we try to isolate personal bias from decisions - we will never eliminate subjectivity completely.

Subconscious decisions work a lot of times. 

Calibrating instruments to match desired results is not a bad thing, if it works. But it is important to be aware of how this process works, even when it works. And the calibration process should be as controlled as possible.

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