Psy-Fi Blog reviews the new book by FT columnist John Kay:
Many of the great mistakes of history, including the problems financial markets have continualy re-experienced, have been caused by a basic error of judgement – the idea that it’s possible to define, plan and control the outcomes of the world around us despite the rampant uncertainty we daily take in our strides. So instead of relying on expert judgement and feeling our way carefully towards outcomes we’ve found ourselves traduced by people with tunnel vision and a strong but unjustified confidence in their ability to navigate unerringly to a correct solution, whatever that might be. ...
At the centre of Obliquity is the idea that we mostly don’t make decisions through some careful process of analysis – maximisation, or whatever term you want to apply to it – because the world is too complex to permit of such an approach in real life. This theory of direct decision making is not just wrong, but is also at the heart of some of the worst decisions in history, invariably made by people who thought that they knew what was right for everyone else.
Instead we end up with reasonable outcomes when we approach decision making obliquely – by using judgement and skill and, frankly, muddling our way through making the best of the situation as we find it on a day by day basis. The book gives example after example of corporations that have succeeded in making their shareholders very rich by setting themselves objectives that are nothing directly to do with wealth creation – and also shows how often direct attempts to generate wealth lead to the exact opposite outcome.
Much more here. This adds to the welcome proliferation of books in the last decade that challenge our understanding of how much control we have over outcomes in our lives.
People are inconsistent in how they view their own lives versus the lives of others. We tend to look upon another person's lot in life and, whether it's that of a celebrity or a destitute bum, assume it is mostly deserved. And we treat him that way. But when we look at the outcomes in our own lives, we're more likely to see them as a combination that, along with talent and effort, includes factors beyond our control. I don't know if books that make us aware of these biases lead to any actual changes in behavior, but it doesn't hurt to be reminded of them now and again.