Dunning Kruger Effect & Black Swan

We all have heard this before : "Little knowledge is a dangerous thing" and lot of us mouth this sentence lot of times implying that we are the experts thus its applicable on others only..This idea is incredibly powerful because there is evidence that having a little knowledge on a particular topic can lead to vast amounts of overconfidence. This overconfidence, in turn, can lead to bad decision making. In psychology, this is known as the Dunning-Kruger effect, or the cognitive bias in which individuals with low ability perceive themselves as having high ability.

Dunning and Kruger found that after gaining a small amount of knowledge in a particular domain, an individual’s confidence soared. However, when that individual was provided with further training, they were better able to assess their skills and their confidence dropped. It was only once their experience approached that of an expert did their confidence rise again.

Hearing that the world is going to hell is more interesting than forecasting that things will gradually get better over time, even if the latter is accurate for most people most of the time. Trouble is that progress happens too slow for anyone to notice and setbacks are easy to recognise.

I understand there are some activities that are giving heebie-jeebies to managers as doing some activity gives a satisfaction of achieving something.. confusing activity with productivity

  • Drop in business activity :Some companies have seen their growth rates drop.Several are now at risk of missing their Q1–2020 plans as the effects of the virus ripple wider.
  • Supply chain disruptions : The unprecedented lockdown in China is directly impacting global supply chains.
  • Curtailment of travel and canceled meetings : Most confusing and distressing as most are out of scene of action.

I have read a lot of professionals citing 'Black swan' to describe the situation arising out of #WuhanCoronaVirus . I guess lot of them did actually read the book by Taleb but few actually understood the implications and thus are passing of their inability to plan for uncertainties of businesses as God's wrath aka Black swan. I am even more amazed at the usage of word 'strategy' often and inability of organisational heads to spend time understanding people with whom they work. Long term is just managing this year's result and focus is quarter. How to manage quarter is the only strategy most think of.

Strategic thinking requires us to validate assumptions and identify comparative advantages as well. First, we must understand how circumstances are intertwined and connected. There are no separate levels of business warfare, Michael Handel’s model of interaction submits that tactical actions can have strategic consequences just like strategic decisions can alter where and how the application of tactics occur.

I have always argued in my management tenure that most things in business have to be pushed to their limits once in awhile, if only to see where the limits are. “Unsustainable” is the most common state that businesses and markets reside in. I also understand that lot many managers are right now too pessimistic given the pall of gloom thanks to Wuhan Corona Virus. There is term in behavioral Economics to describe this state : Recency Bias.

I am now looking at biological models of process and how we can study fiascos. One such model is cancer cell growth leading to metastasis that can kill the host. First a single cell mutates. Soon other cells gather and form a tumour. You can either go for chemo, radiation or surgery. However very rarely you can remove the cancer for it will metastasize and kill the host painfully. Most are passing the buck of their inability manage long terms, building an anti-fragile organisation and being blindsided on series of bad decisions (decade long) that started from chasing margins and thus landed with "cutting flab for efficiency" along with getting it manufactured through OEM. Well you are definitely in for a shock.

Well, let me assure my fellow professionals that world has been through much worse and will also go through in future. We have done fine enough as human beings i.e. improving the life expectancy to 70 years in India alone from 33-34 years in 1947. As my professor used to say, "The difference between pessimism and optimism often comes down to time horizon."

I have done root cause analysis from trivial to very important things. What I find is, that is all good for preventing the past from repeating. Every accident is a new one because of Swiss Cheese model of process, procedures, and people. What is needed is the ability to recover from an accident or incident. This is military thinking and not understood by business managers.

Realizing this I look for spotting vulnerability and closing the gap thru which one can be hurt. To understand the larger issue that should be kept in mind in post Corona virus world, I would like to invite you to read my note https://www.linkedin.com/pulse/redesigning-corporations-success-chandrabhan-singh/ Organisations chasing too much efficiency eventually get dethroned & eventually cease to exist. OTOH organisations that grow a bit slower and make an Industry average margin, tend to survive longer i.e. Tata, IBM, GE . Point I wish to make is in a way what you call inefficiency is built in redundancy (accumulated knowledge) that helps organisation survive.

Also all data point to the fact that India will emerge out much stronger and will be the fastest growing large economy for foreseeable time. Exports merely make 7.8% of our GDP. 2 weeks of lockdown out of 52 , with 40% of economic activities (Transport + Manufacturing etc.) are at 60% is merely a blip. Trade carries 3 weeks of stock of consumer goods, 3 weeks in logistics & 4 weeks in warehouses. Once the wheels roll, it will mostly be replenished except for few categories i.e. Power, Durables, transport.. We will have to localise manufacturing and globalisation is dead.

Use this opportunity to put internal house in order. Re-orient policies

  • To get the core sector manufacturing back in country.
  • Sacrifice margin for survival & sustainability
  • Get diverse experience in corporate boardroom & management teams

As a nation, I see this situation as the closest to a warlike situation that has come to the home of every Indian, in every state and not just at the borders like most wars were (Kargil, 1971 etc. etc.). Those wars truly affected only the military soldiers/their family, and only those civilians living in those border states. Citizens in the rest of the country could and did go back to regular programming after the war was over. Now is the time to push

  • Swacch bharat
  • Reducing/bypassing babucracy
  • Move towards Uniform civil code- religion can't take precedence over national security
  • Build other city infra to reduce need to live in Metros (Mumbai/Bang/Delhi) : WFH

It is very likely that India emerges is the biggest winner from this disaster both civilizationally, economically and militarily. Low oil prices. likely low probability of high covid-19 cases being a tropical country and summer almost there. Pushing manufacturing policies may not result in Indian industry necessarily take over all MFG lost by China, but will definitely benefit, and this will help maintain the growth rate.

+ Indian IT exports will suffer significantly due to spending cuts by foreign clients, travel risks and increased remote working costs.

+ More investments in AI and touch less technologies, and not just in medicine but many other fields

Learning is that if you learn more specific a lesson from past failures, more likely that you will fail again. This is rather true for template driven organisation in marketing and hiring. It’s not until your life is upended, your hopes dashed, your dreams uncertain that people begin taking ideas they’d never consider before seriously i.e. hiring experienced, diverse group of hands to tide over.