Ethos Issue 7, Jan 2010

Thinking through Complexity,
Managing for Uncertainty
Lam Chuan Leong

For example, one challenge for managing in an inherently uncertain and complex environment is how we deal with cognitive and behavioural biases. These biases can skew our judgements of probability and uncertainty, especially when we rely on our Automatic System. The following is a short list of the key biases we need to be aware of.

The great rationaliser: Our left brain is the great "rationaliser" or story-teller. Emotions are needed for decision-making, but we often invent stories to explain our decisions to others and ourselves—stories which may vary greatly from our actual deliberations.

Anchoring: Experiments have demonstrated the importance of anchoring effects. For example, if a subject is exposed to a large number just before you make a purchase, he tends to be willing to pay a higher price—even if the number has nothing to do with the object of purchase.

Confirmation bias: The mind tends to see what it wants to see, which means we often, perhaps unconsciously, ignore evidence that contradicts our beliefs.

Framing effects: How problems or options are framed can have different effects on people’s responses. This is especially important to policymaking—for policymakers to avoid being misled by framing effects, and to frame problems carefully to elicit the desired responses in their target audience.²

CONCLUSION
Our education system has done a wonderful job in teaching the analytical thinking we need for most problem-solving. The new thinking for managing complex systems is relatively new. The first lesson we draw from the arguments above is that in the past, we could rely on analysis and control. In the future, we are looking for innovative solutions, or to generate new ideas. The second lesson is that we must remember the motto of Delphi—"Know Thyself"—when we think about issues. In other words, we need to learn to make sense of the environment in which we operate and recognise its inherent uncertainty and complexity. We need to understand the role that emotions play in our decision-making process.³ We need to recognise the behavioural and cognitive biases we are subject to; the time constraints that we act under, and the system of thinking we rely on. Above all, we need to adopt a model of critical thinking that challenges rules established from prior observation because complex systems do not necessarily have repeatable and enduring cause-and-effect relationships.

Mr Lam Chuan Leong is Senior Fellow of the Civil Service College, Ambassador-at-Large with the Ministry of Foreign Affairs and Chairman of the Competition Commission of Singapore. Mr Lam’s key areas of interest and expertise are in the application of general management theories, particularly in the context of complex systems. His career background has been in macro-economic management, trade and investment and science and technology policies. In the course of this, he has worked on micro-eonomic issues, particularly in regard to regulation, monopolies, competition policy, pricing and market efficiency, privatisation of government services, transport economics, and the relationship between the public and private sectors on key projects.

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