Ethos Issue 7, Jan 2010
Thinking through Complexity,
Managing for Uncertainty
Lam Chuan Leong
Our thinking is less rational than we’d like to believe, but
can we learn to outsmart our own cognitive biases?
INTRODUCTION
Recent events suggest that we are
experiencing a period of increased
"turbulence": take for example, the wide-ranging
impact of the South-east Asian
Tsunami in 2004, the September 11,
2001 incident, the 1998 Asian Financial
Crisis, the 2003 Severe Acute Respiratory
Syndrome (SARS) epidemic and the 2008
Financial Crisis. Many organisations are
asking why these severe crises were not
detected sufficiently early by their risk
management systems.
One reason is that the world is
becoming more complex and therefore,
more unpredictable.
The second reason is that current
risk management systems and other
attempts to predict the future are based
too much upon linear relationships
derived from past experience. They fail
to take into account our behavioural
limitations in handling probabilities,
and also the nature of complex non-linear
systems which do not always
have a definite or repeatable cause and effect relationship. We need, therefore,
to consider a new way of looking at
the world around us and a new way of
thinking about issues instead of the
traditional "Rational Man" model.
Combining the findings from
Behavioural Economics and Complex
Systems points of view, we can classify
the way we think and manage events in
a two-by-two matrix
as follows:
Behavioural economists have shown
that when confronted with decisions in
a short time interval, we think in ways
that are different than if we were given
more time to make decisions. We use the
Automatic System to deal with matters
that require very fast decisions. The
Automatic System, as the name suggests,
controls our intuitive, automatic
responses. It is typically uncontrolled,
effortless, associate, fast, unconscious and based on practised skills. This is
the system of thinking we tend to use
in our day-to-day activities, and when
we have only a short time in which to
make decisions.1
II I |
