The sharing of information, expertise and experience within a team is an essential ingredient of performance. Yet, it doesn’t happen just because people sit in the same room, or in the same building. This is because sharing involves risks – social risks (holding unpopular beliefs), status risks (saying something foolish), career risks (disagreeing with the boss), etc. Few will take these risks unless there is trust. Continue reading
“Why do they have pictures of knives and forks here, daddy?” My daughter, then six-years old, was gazing out of the window of the airport bus as it brought us from the aircraft to the terminal building of Frankfurt Airport. I looked up briefly from my text messages. “Where do you see knives and forks, sweetheart?” I asked. “Everywhere”, she cried. I peered out of the window more intently this time. I leaned over to align my viewpoint with hers. I looked behind to check the area the bus had just passed. I looked left and right, inside and outside. Nowhere could I see cutlery of any description. “I can’t see any knives or forks”, I said, apologetically. She grew visibly exasperated: “Look! There! And there!” I didn’t want to upset her, so I remained silent as I scrutinized our surroundings. Then I saw them. They were indeed everywhere.
“Can you explain behavioural finance to my 14-year-old daughter?”
As the girl’s father was a finance professor, I had the impression that he might already have tried it unsuccessfully himself. Undeterred, though, I turned to the unenthusiastic teen and asked her to imagine a prize draw with a £100 reward for the lucky person whose ticket number is randomly drawn from a basket.
There are only 100 tickets,” I explained, “so, arguably, each entry ticket is ‘worth’ £1.” She nodded in agreement. “Now suppose I offer you the chance to buy one of those tickets for 90p. Would you take it?” She nodded again, smiling. Was this going to be easier than she thought? Continue reading
I had the honour of attending a university graduation ceremony recently. It was a grand affair, full of pomp and tradition. But I have to admit it was little boring. Each one of almost 300 graduates was invited to go up on stage to receive their degree and to shake hands with the Chancellor and other senior members of the teaching staff. Yet, I was only interested in seeing one degree awarded. To pass the time, I decided to play a game of First-Class-Honours Bingo. Continue reading
“Someday, we’ll look back at this and laugh.”
This expression is reserved for people who, because they are suffering some awful physical or social pain, can find no reason to laugh right now. They have either blundered into made a costly mistake, collided with an avoidable obstacle, or stumbled into a social faux-pas. Yet, they are convinced that in a foreseeable future, their recollection of the moment will allow them a comic interlude. Continue reading
A few years ago a NY hedge fund boss asked me a strange question. I thought it strange because I believe he knew in advance how I would answer, and how he would respond to my answer. And both of us knew that nothing either he or I said would make a blind bit of difference to how hedge fund bosses ran their businesses. The question was: What do you think of individual performance bonuses? Continue reading
One much-discussed indication of a firm’s good governance is hiring and promotions free of nepotism[i], cronyism or any other form of favouritism. Yet, despite the growing importance stakeholders attach to the ‘G’ in ‘ESG’, many organisations, both public and private, struggle to change their ways. Evidence remains of advancement based on family, nationality, language, politics, religion, alma mater and, of course, gender and ethnicity.
The consequences of unfair patronage for the subsequent performance of the patron and their protégés are varied, and (annoyingly) not always negative. However, the impact on everyone else in the organisation, is unambiguously bad.
In their 90’s hedonic anthem, Digital Underground invited party revellers to ‘doowutchyalike’. Yeah. Doing just what we like is probably the purest form of satisfaction. So, if our goal is to maximise the collective satisfaction of a population, we ought to distribute the limited resources so that as many as people as possible get as much of the things they like as possible.
The problem is that it is difficult to discover what people like without asking them individually. What people want, in contrast, is immediately revealed in their purchases. Continue reading
On a single day last May, a massive cyber-attack called WannaCry Ransomware blighted over 200,000 Windows computers in some 150 countries. It might have been more had it not been for the quick actions of Marcus Hutchins, a cyber-security expert, who discovered a kill-switch built into the ransomware’s code. Apparently, before infecting a system, locking its files, and demanding a ransom from its owner, the ransomware first checked for the non-existence of a gobbledygook web domain. Hutchins simply registered the domain for $10, brought it into existence by pointing URL requests to his own server, and thereby thwarted the attack. Hutchins became an overnight hero (sadly for him, the new status did not last much longer than overnight). However, you or I could have claimed some credit for halting WannaCry. All we would have needed was Hutchins in our team, and set him to work. Failing that, we would have to have had at least one person in our team capable of coming up with the idea of looking for a kill switch, another able to find it hidden in the code, and another with a credit card to put in a call to GoDaddy.
In the decision sciences, a clear distinction is made between risk and uncertainty. You take a risk when you know in advance all the potential outcomes of your choice, and their respective probabilities. This risk description covers things like coin tosses, lotteries and spins of a slot machine. In such circumstances, only cold logic, statistical thinking, and possibly a pocket calculator, should influence your decision about whether to run the risk or not. As soon as some of the outcomes, and/or some of the probabilities, are not known, we enter the realm of uncertainty. In this less ordered domain, reason and statistics become less useful because there is nothing to calculate. Instead, argue decision scientists, one should rely more on one’s intuition, gut feelings and rules-of-thumb. Examples of such judgements include living to be one hundred years old, falling in love, or being killed by a terrorist. Any decision to bet on them – or insure against them – involves dealing with uncertainty… Read more on TCAM’s website