Overcoming the illusion of control

Some things in life are predictable. Others are not. Some events are controllable but others are not. Three professors provide counsel on how to improve your decision-making by factoring in chance.

	Title:	Dance with Chance: Making luck work for you
	Author:	Spyros Makridakis, Robin Hogarth, Anil Gaba
	Pages:	287pages
	Publisher:	Oneworld, Oxford ISBN 978-1-85168-653-7
	Price:	$22.95

When three professors, experienced enough to have earned the esteem of their peers, set forth to write a book one might expect a heavy oeuvre – one freighted with graphs, charts and algorithms. Not so in this case. The book’s graeco-anglo-hindi trio of authors, (see boxes on Spyros Makridakis, Robin Hogarth and Anil Gaba) have put to paper  an  instructive, witty, cool, and possibly even a profound eulogy to something not ordinarily expectable in business school teachers:  the chastening role of chance in the discipline of management… and other areas.

The trio – perhaps because of their years spent attempting to bash sense into MBA students’ heads – in this work seemingly intend to develop and propose a simple yet logical procedure to help non-academics to make important decisions. The book has two parts: the first six chapters demonstrate why and how we must first deliberately give up control -- in order then to be able to proceed, in the right way, to gain it. The second part of the book provides us with some simple tools to improve our decision-making – once we have recognized that the phenomenon called chance has not been satisfactorily factored in. Chance, it seems, lurks in hard-to-see places, from where it may waylay one.

Dance with Chance teaches, via the provision of cases, even anecdotal and fictional ones. In the first section of the book the authors examine three specific areas: healthcare, investing, and management ‘science’. Concerning all three the trio brilliantly – even if, at times, polemically – dispels the notion that we have the power to ultimately control our destinies. This is a delusion. Our destinies are greatly affected by the destinies of others, including even the force of nature (or the supernatural).  Thus play it legit and rely on simple reasoning or taut logical models—at least so say the authors (and continue to do so later in this review).

In the healthcare field, the authors appear at their most controversial. Among other advice, they recommend that healthy individuals skip their usual annual medical checks. Why? Doctors drive follow-on business, have vested interests, and make mistakes. Some of their crucial prescriptions may be rendered obsolete, or even exposed as harmful, by later research. The critical take-away is that both patients and doctors need to realize, explain and accept, that they interact in a world of medical uncertainty. For our trio, the control that doctors can exercise (by making patients believe that their cases can be cured) needs to be accepted skeptically. One comes away from this section with the feeling that the authors have dedicated it to making intellectual points, rather than attempting a factual report. Or maybe they have been presenting us with a parable about the need for skepsis.

Their handling of the investment field (see box), is less bumptious. Even so, they keep pressing the book's basic thrust: o reader, beware of exercising control that may be based on delusion.  Markets, both for equities and commodities, are unpredictable except in some overarching generalities. Thus stock prices rise over the long term, whereas commodity prices decline. But apart from such nostrums the message is, beware and exercise patience.  Or, more concretely, rely on no one but an expert stock picker, one with the timing gift of a stand up comedian. But as such creatures scarcely exist, settle for the next-best thing, a low-cost index-tracking fund.

Perhaps the three management professors’ most unexpected criticism is aimed at their cousins, the management gurus. The book here warns against these errant gurus' chosen way of predicting corporate success exclusively in consideration of past track record. The past is the past, and the future’s chancy. So, what the errant management gurus are trying to teach is “pseudo-science.” Our professors object to the other gurus' practice of analyzing only success, while ignoring failure, or vice versa, depending on the spin they are attempting to impart to their work. They also complain of the errant habit of using evidence resting on tendentious samplings. But at the end of the day what is actually needed, they counsel, is an ongoing regime of reality checks while attempting to attain control.

Following all this the trio devotes the next six chapters to dealing with the sort of theorizing that they feel will help the reader to understand uncertainty – understand it sufficiently, that is, to apply simple ways of improving decision-making in chancy situations. The trio proposes a simple scheme (see chart) to help us determine whether outcomes are controllable or not. The factor of chance, apart, they warn of other pitfalls:

•    Avoid perceiving a pattern where in fact none exists. All too often it's random noise that is mistakenly seen as the keystone of a pattern. That is enough to disqualify the validity of any management decision
•    Avoid over-rating the weight of a problem. Ask yourself, is the decision of sufficient importance to justify full analysis? Low-impact decisions do not rate full analytical treatment
•    Avoid "hindsight bias”. By this, the authors mean extrapolating from the past to predict the future. The immediate future may have no bearing to the past, as stock market investors on Black Tuesday were reminded to their disastrous detriment.
•    Avoid the extremes:  purely intuitive as well as over-complex mathematical modeling tend to be counter-productive. Use only simple mathematical modeling.  Guessing the weight of an ox at the country fair is one; or the number of pennies in a jar. The result of fifty guesses in either case will get you a good model.

When it comes to the laws of uncertainty the book divides these into ‘subway’ and ‘coconut’ uncertainties. The former refer to the well-distributed probabilities, such as of the travel times by subway from point A to point B. ‘Subway’ uncertainties are well predictable, even mathematically reproducible. Just ask Gauss or Poisson. But trains still do not necessarily run on time. The ‘coconut’ uncertainty refers to the ‘one-in-a-million’ chance of something extraordinary happening: winning the lottery or being killed by a falling coconut.

To help handle the discomfort of uncertainty, the authors recommend the ‘triple-A’ approach: accept-assess-augment. One must first resign oneself to the fact that uncertainty pervades many situations. The next step is to assess the level of risk involved. The trio then recommends augmenting the estimate of uncertainty so as not to underestimate its impact.

In one of the late chapters, the authors delve into the work practices of celebrated thinkers such as Nobel prize winners and kindred geniuses. These suggest that greatness is the fruit of hard work, extreme dedication and the attendant ability to exercise good judgment swiftly. Practice makes perfect, and dedication to getting it right sets these achievers apart – apart because they have managed to overcome the hurdles and traps set by chance.

This laid-back, witty, anecdote-filled book hammers away at two points. To reiterate: Point One is that we should be very vigilant when attempting to achieve control. Some events are unpredictable. Some situations are irredeemably beyond the remit of our control. The thing to do is to persevere and try other approaches to one's goal.

Point Two is that decisions can be made in four different ways (see box). Most of our daily decisions, can be made either instinctively or with the help of simple models.  But always beware of putting too much trust in your gut or, to the contrary, in excessive modeling. For important decisions the authors recommend taking the time to figure out a good simple one.

To the hard-eyed it may seem that we may have no serious book here. But to the patient and perceptive reader it may occur that it has provided a timely management gospel. Timely because, at this tempestuous season, management is in wide and deep disrepute. So perceived, our three authors may be likened to the three Christian evangelists, Matthew, Mark and Luke who in, greatly troubled times, laid down in a necessarily shadowy way the goals and the operative principles of their, yes, ‘business’. They did so that their ‘business’ might avoid the dreadful crash of the apocalypse predicted by the fourth evangelist, John.