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Finding Patterns to Avoid Mistakes

One of the main things I argue on this blog is that there are patterns of problems and traps that you can look out for if you are alert. Perception matters. The discussion of the Fed’s view of portfolio losses in this post earlier this week is an instance of a more general problem: people nearly always find it hard to see other preferences and identities.

Here is James March, one of the most important writers on decisions, in his classic book Primer on Decision Making: How Decisions Happen.

Decision processes depend on perceptions of preferences and identities. These perceptions are subject to human error. .. Individuals develop beliefs about their own and others’ preferences and identities on the basis of incomplete information. They infer preferences and identities from actions, events and communications that are susceptible to multiple interpretations. They guess values that are obscured by problems of interpersonal and intercultural communication, as well as by deliberate falsifications and strategic misinformation.

.. As a result, decision makers are likely to be inaccurately informed about what other people want, how they intend to get it, what they think is appropriate behavior, and how they feel about other people.

March teaches at Stanford Business School will be familiar to economists as one of the founders of the behavioral theory of the firm.

In other words, if you want to make successful decisions, one thing you have to watch out for is failing to get the preferences and notions about appropriateness of other key decision-makers. The trick, of course, is to combine awareness of the general patterns with substance and knowledge of the practical realities, in this case of global macro. You need both the pattern and the knowledge of substance to spot problems.


2017-05-11T17:32:59+00:00 February 20, 2013|Books, Decisions, Organizational Culture and Learning|