In my lifetime, 50 years or so, I have been amazed at two phenomena of quantitative data: 1) how much there is of it now, and 2) how central it has become to all decision-making. When I worked as the on-the-ground director in the Eastern Province of Saudi Arabia of a Preparatory 2-year English program out of the McGill University of Montreal, my managing director consistently told me that we wanted to make “evidence-based decisions”. Almost without exception, evidenced-based decisions were based primarily on quantitative data – numerical surveys, student enrollment vs graduation numbers, student scores, and many more numbers besides. On an institutional level, decisions are slowed down in the hopes they will be justifiable and, in the end, more certain. This story is notably true for all large-scale decision-making from the management of professional sports teams, to the governing of countries, to business ventures. But we feel more uncertain than ever.
I’d like to suggest a bit of a paradigm shift. While we have reached to data to help us mitigate uncertainty, what has actually occurred is that uncertainty has increased with the increasing importance and role of data. This truth is rather counter-intuitive.
On a personal level, we have been, by and large, facing uncertainty. Post-pandemic, we have relied on data-driven decisions to fight inflation by raising interest rates. Not only has this not been particularly effective in slowing inflation, but we also don’t know why. In the early part of the pandemic, in Canada, home sales surged – many of such purchases acquiring of a larger space, thus securing a home from where one could also work. That is one sign of insecurity and uncertainty. Further, businesses closed in record numbers, and the unemployment rate shot up. Where the economy could not provide stable jobs, the government stepped in. 18 months later, the rate of people voluntarily quitting positions without a replacement job surged. Companies are still having significant trouble hiring and retaining talent. It seems that the population has found a sense of security not solely based on their employment status, counter to what the data suggested. It used to be common to think that if one had a job, one would be ok; however, one is now more invested in their long-term security to such a point that a job offer is seen more as a temptation than it once was, i.e. a temptation to jeopardize well-being.
This, on its own, tells us something that no data ever could. Instead of relying on a market economy to secure our well-being, the economy is rather considered threatening to our well-being… probably, that is.
When faced with uncertainty, how should leaders react? Should they make a big bet, hedge their position, or just wait and see? Leaders have naturally tended to see situations in one of two ways: either an event is certain and can therefore be managed by planning, processes, and reliable budgets; or it is uncertain, and we cannot manage them well at all. Fortunately, there is another approach. Imagine a billiard table. You put on a blindfold and your assistant randomly rolls a ball across the table. They take note of where it stops rolling. Your job is to figure out where the ball is. All you can really do at this point is make a random guess. Now imagine that you ask your assistant to drop some more balls on the table and tell you whether they stop to the left or right of the first ball. If all the balls stop to the right, what can you say about the position of the first ball? If more balls are thrown, how does this improve your knowledge of the position of the first ball? In fact, throw after throw, you should be able to narrow down the area in which the first ball probably lies. This is an example of probabilistic thinking. Developing a probabilistic mindset allows you to be better prepared for the uncertainties and complexities of the Algorithmic Age. Even when events are determined by an infinitely complex set of factors, probabilistic thinking can help us identify the most likely outcomes and the best decisions to make.
Our new world of sensors, smartphones, and connected devices means more data than ever — but does it also mean that it’s getting easier to make well-informed decisions? Quite the contrary. What’s more important than how much data you have is how it frames the way you think. Too often, leaders who are under pressure to appear decisive attempt to deal with complex issues with simple rules or analogies, selectively using data to justify poor judgment calls. But what if rather than trying to be right, you could be less wrong over time?
When faced with uncertainty, how should leaders react? Should they make a big bet, hedge their position, or just wait and see? Investors and traders might be adept at managing risk and unforeseen events, but in other industries, leaders can be blindsided by the unknown. This is why I am skeptical of the movement toward Environmental Social Governance (ESG). It attempts to avoid the responsibility of judgment. We naturally tend to see situations in one of two ways: either an event is certain and can therefore be managed by planning, processes, and reliable budgets; or it is uncertain, and we cannot manage them well at all. Fortunately, there is another approach.
Consider Thomas Bayes, an English statistician, and clergyman, who proposed a theorem in 1763 that would forever change the way we think about making decisions in ambiguous conditions. Bayes was interested in how our beliefs about the world should evolve as we accumulate new, but unproven, evidence. Specifically, he wondered how he could predict the probability of a future event if he only knew how many times it had occurred, or not, in the past. To answer that, he constructed a thought experiment.
The billiard ball experiment I meant earlier was Bayes’s. He figured out that even when it comes to uncertain outcomes, we can update our knowledge by incorporating new, relevant information as it becomes available.
You can find evidence of Bayesian thinking throughout modern history, from nineteenth-century French and Russian artillery officers adjusting their cannons to account for uncertainties about the enemies’ location, air density, wind direction, and more, to Alan Turing cracking the German Enigma codes during the World War II. Bayes has even influenced the design of AI and machine learning techniques, notably with naive Bayes classifiers, which are a family of algorithms used to predict the category a data object belongs in. They’re used in a wide range of applications from social media sentiment analysis to spam filtering or movie recommendation systems.
For modern leaders, Bayesian thinking has also become increasingly influential. For example, at Amazon, one of the 14 Leadership principles is “Have Backbone; Disagree and Commit” — which, as explained by Jeff Bezos —is a strategy to encourage leaders to avoid wasting time trying to secure universal agreement. Better to commit to a controversial decision, and then gather data and adjust if necessary. At X, Alphabet’s moonshot factory, they consciously celebrate failed projects as a data point that helps them narrow the range of options, and in doing so, accelerate innovation. Similarly, Spotify has developed a framework for exploring the relationship between data and uncertainty that they call DIBB (Data, Insights, Beliefs, and Bets). They use it to explicitly identify success metrics for new ideas and opportunities, and create a common language around judging performance.
Data can be imperfect, incomplete, or uncertain. There is often more than one explanation for why things happened the way they did; and by examining those alternative explanations using probability, you can gain a better understanding of causality and what is really going on.
However, thinking probabilistically takes some getting used to, as the human mind is naturally deterministic. Academically, I have advocated for it in a couple of articles: Beyond Humility-Intellectual Meekness as a Way of Being and From Humility to Meekness, From Submission to Agency. We need to cultivate a few virtues that have been sorely lacking. We generally believe that something is true or false. Either you like someone or you don’t. There is rarely, for example, a situation when you can say that there is a 46% probability that someone is your friend (unless you are a teenager with lots of frenemies). Our instinct for determinism may well have been an evolutionary innovation. To survive, we had to make snap judgments about the world and our response to it. When a tiger is approaching you, there is not a lot of time to consider whether he’s approaching you as a friend or a foe.
However, the deterministic approach that kept our ancestors alive while hunting in the savannah won’t help you make good decisions in complex, unpredictable environments when your natural mental shortcuts and heuristics start to fail you. One of the best ways to embrace uncertainty and be more probabilistic in your approach is to learn to think like a professional gambler. Take, for example, Rasmus Ankersen.
Ankersen, a Dane living in London, originally came to the UK to look for an English publisher for his book on human performance, the writing of which had taken him from Kenya to Korea in search of why great athletes, whether they are runners or golfers, tend to come from the same small regions. One of the reasons he decided to stay in London was a chance meeting with a professional gambler named Matthew Benham who founded two gaming companies, Matchbook, a sports betting exchange community, and Smartodds, which provides statistical research and sports modeling services.
When Ankersen and Benham met, they started talking about how soccer was a sport that was yet to be disrupted by data and probabilistic thinking. Benham was impressed enough to invite Ankersen to help run Brentford Football Club, which he had recently acquired. Soon after, Benham also bought FC Midtjylland, the soccer club in Ankersen’s hometown.
Ankersen’s insight was this: Soccer is one of the world’s most unfair sports. Although there is a saying that “the league table never lies,” in Ankersen’s opinion that is exactly what it does. Because soccer is a low-scoring sport, the win/loss outcome of a game is not an accurate representation of the actual performance of a team, and therefore the intrinsic value of its players. As I have argued elsewhere, soccer is a weak-link sport. Yet, from a professional gambler’s perspective, the key to placing a good bet is to continually update your position with relevant insights that impact the probability of an event occurring. Rather than trying to be right, gamblers strive to be less wrong with time.
Benham and Ankersen started to use the scientific application of statistics — the “Moneyball” technique pioneered in baseball — when assessing the performance of a team. Their key performance metric became “expected goals” for and against a team, based on the quality and quantity of chances created during a match. The point of this exercise was to develop an alternative league table, which might serve as a more reliable predictor of results and a better basis on which to value and acquire players.
Benham and Ankersen’s approach has lessons for all kinds of leaders as they seek to incorporate more data into their decision-making. A probabilistic HR manager, for example, might examine the data about where a company’s best people come from and how they perform throughout their careers to identify new sources of talent that may have been overlooked. A probabilistic sales professional might be conscious that it’s not enough to simply close lots of deals; it’s critical to also think about where leads come from. Rather than relying on inflexible credit policies, a probabilistic risk manager might start to look deeper into their data to see if there are low-risk segments in their customer base that they may have missed.
Developing a probabilistic mindset allows you to be better prepared for the uncertainties and complexities of the Algorithmic Age. Even when events are determined by an infinitely complex set of factors, probabilistic thinking can help us identify the most likely outcomes and the best decisions to make.
But there is another leadership aspect that makes probabilistic thinking more effective. It is a constant awareness of the present moment and the things that have gone into the present. As mentioned already, the mind is deterministic because it doesn’t like to make judgments. But, the type of judgment it wants to avoid is evaluative judgments – and not taking on a probability mindset is out of fear of making a bad choice. However, there is another type of judgment: discernment.
If we are afraid of probabilistic judgment, we are overlooking discernment out of fear of evaluation. But discerning something, and being aware of its present reality, is the very thing a leader needs to take into account to be a good leader. And it is this awareness that will make uncertainty all the less scary. In other words, leaders who need to judge should move away from evaluation and towards discernment.
And the movement toward discernment is a kind of natural reaction when you are uncertain but not under immediate threat. Sometimes, we have to admit, we have forgotten this simple truth.
Raymond Klassen - Ideals and Identities 