Business Insight Zone

Two streams of thought converged for me this afternoon . . .

1. I’ve long enjoyed Heidi Moore’s work for the Wall Street Journal, and was pleased by the revised version of this piece:

The History of Mike Mayo Bank Downgrades

The first version of the piece, which I read this morning, included examples of Mayo’s bearish projections for U.S. banks, and of the sometimes vitriolic reactions to those projections by bankers, but it didn’t actually say whether Mayo was right in his projections. The revised version does exactly that — and provides more detail all the way around. (Kudos to Moore for responding to commenters who were calling for these details.)

2. After reading this post by Dave Livingston, which kindly quotes some of my own thoughts on Warren Buffett, I followed pointers from Dave to these two articles:

• Nicholas Kristof in the New York Times — Learning How to Think
  
• Sharon Begley in Newsweek — Why Pundits Get Things Wrong

Both of the articles talk about the research of psychology professor Philip Tetlock, who has spend decades studying the nature and quality of predictions made by pundits. It’s fascinating stuff — with big implications for the way we create and consume media, if we’re willing to consider those implications.

Tetlock figured out that the quality of predictions had little to do with having advanced degrees, pursuing one academic discipline instead of another (or none), having policy experience, or being of any particular political school of thought. He did find that the most famous pundits tended to be the most wrong.

So, who made the best predictions? Foxes, not hedgehogs.

I’ll let Begley explain the language (and encourage you to read her article in full):

That bestiary comes from the political philosopher Isaiah Berlin, who in 1953 argued that hedgehogs “know one big thing.” They apply that one thing . . . everywhere, express supreme confidence in their forecasts, dismiss opposing views and are drawn to top-down arguments deduced from that Big Idea. Foxes, in contrast, “know many things,” as Berlin put it. They consider competing views, make bottom-up inductive arguments from an array of facts and doubt the power of Big Ideas. . . .

In short, what experts think matters far less than how they think, or their cognitive style. At one extreme, hedgehogs seek certainty and closure, dismiss information that undercuts their preconceptions and embrace evidence that reinforces them, in what is called “belief defense and bolstering.” At the other extreme, foxes are cognitively flexible, modest and open to self-criticism.

Pardon me for a moment while I pat myself on the back for being a fox. (No one who knows me would ever accuse me of being a hedgehog under Berlin’s definition.)

Okay, so what do we do with this knowledge? Keeping in mind what I said last week about why I don’t write on politics, I suggest three things:

1. Stop listening to hedgehogs.
   
2. Undermine our own hedgehog tendencies.
3. Ask for the score.
   

The first step implies some possibly radical changes in our media consumption habits.

The second step may require some serious changes to our habits of thought, if we’re used to seeing the world in ideological terms. It occurs to me that there might be a connection within companies between being stuck in a way of thinking and being persistently wrong about — and thus unprepared for — the future.

The third step requires that we return to the data, over and over. Some of the commenters on Heidi Moore’s post this morning were ready to hang Mike Mayo from a yardarm for . . . for . . . well, apparently for having the gall to challenge the sanctimony of Big Banking. That’s hardly a good leg to stand on, if we’re trying to make sensible arguments.

Now, over to you:

• What are some of the worst sources of hedgehog thinking you encounter in business?
• What do you do to fight hedgehog tendencies?

~

Photo by Alexander Konovalenko; used under a CC-Share Alike license. No actual hedgehogs were harmed in the making of this blog post.

Category: Media