Challenging How We Think, Part II: Michael Mauboussin

I always grimace when I hear people extol the virtues of “intuition” in philanthropic decision-making. Often, I hear people say there is too much emphasis on data, and that good decisions require intuition.

Frankly, the idea that data-driven decision-making is over-emphasized just doesn’t square with what I see in philanthropy or, for that matter, in business and government. Long indeed is the list of decisions, across the sectors, that were made either without any data, with poor data, with misinterpreted data, or with outright hostility to good data that suggested another (usually more politically difficult) decision was the right one. So I am for more data, less intuition, when it comes to decision-making.

Of course, intuition has its place. As Esther Duflo, who I blogged about last week, put it in an interview with The New Yorker, “It can’t only be the data. Even to understand what data means, and what data I need, I need to form an intuition about things.”

But Duflo’s point is that it can’t only be intuition, either.

And it isn’t just that intuition isn’t enough, it’s that intuition often leads to bad decisions. This is a big part of the point of Michael Mauboussin’s book, Think Twice: Harnessing the Power of Counterintuition. In this book, Mauboussin, who along with Duflo will be speaking at CEP’s May 10-11 conference in Boston, describes how smart people make bad decisions.

He opens with this story:

In December 2008, two seemingly unrelated events occurred. The first was the release of Stephen Greenspan’s book, Annals of Gullibility: Why We Get Duped and How to Avoid It. Greenspan, a professor of psychology, explained why we allow other people to take advantage of us and discussed gullibility in fields including finance, academia, and the law. He ended the book with helpful advice on becoming less gullible.

The second was the exposure of the greatest Ponzi scheme in history, run by Bernard Madoff, which cost its unsuspecting investors in excess of $60 billion. …

The irony is that Greenspan, who is bright and well regarded, lost 30 percent of his retirement savings in Madoff’s Ponzi scheme. The guy who wrote the book on gullibility got taken by one of the greatest scammers of all time.

Mauboussin goes on to describe a wide range of common decision-making mistakes that befall smart people and to offer some strategies for avoiding them. It takes intense discipline to remain mindful of the decision-making traps Mauboussin describes, but it’s well worth it, as his book makes clear.

I am delighted that Michael, whose day jobs are Chief Investment Strategist at Legg Mason Capital Management and adjunct professor of finance at Columbia Business School, will be at our conference in Boston in May of next year.

Registration is not yet open for our conference, but it will be soon. Check our conference page for regular updates.

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