The Halo Effect and the Eight Other Business Delusions That Deceive Managers
by Phil Rosenzweig
Many business books and articles have been written about what Phil Rosenzweig calls “the mother of all business questions… What leads to high performance?” This book explains why much of this analysis is “riddled with errors.”
Using the examples of Cisco, ABB, and others, the author demonstrates the phenomenon. When times were good—strong revenue growth and a soaring stock price—these companies were praised for their exemplary strategy, culture, and CEO. When financial performance fell, the same strategy, culture, and CEO were ripped apart as severely flawed.
Why does this happen? Because we love stories. “As long as Cisco was growing and profitable and setting records for its share price, managers and journalists and professors inferred that it had a wonderful ability to listen to its customers, a cohesive culture, and a brilliant strategy. And when the bubble burst, observers were quick to make the opposite attribution. It all made sense. It told a coherent story.”
“Yet there’s a bit more to it. Our desire to tell stories, to provide a coherent direction to events, may also cause us to see trends that do not exist or infer causes incorrectly. We may ignore facts because they don’t fit into our story.”
How does this happen? Introducing the Halo Effect. Continue reading
The Death of Expertise: The Campaign against Established Knowledge and Why it Matters
by Tom Nichols
This book is about the erosion of respect for facts, logical analysis, and critical thinking. Uninformed opinions carry the same weight as expert opinions. There is no vetting of dubious sources from credible sources. Beliefs are conflated with facts. It is in this climate that hoaxes, conspiracy theories, fake news, propaganda, and all manner of bullshit thrive. Tom Nichols, professor of national security at US Naval War College, examines this phenomenon and some of the causes, including higher education, technology, and the news media. Continue reading
Chance: A Guide to Gambling, Love, The Stock Market, and Just About Everything Else
By Amir D. Aczel (1950-2015)
This is a book about probability, the “quantitative measure of the likelihood of a given event.” The author applies probability theory in numerous scenarios.
Assuming a World War II pilot had a 2% chance of being shot down on each mission, what are the chances of a pilot being shot down in 50 missions? Nope—it is not 50 x 0.02. Using the law of unions of independent events, the answer is 1 – 0.9850 = 64%. In another example, there are three overnight couriers with an on-time record of 90%, 88%, and 92% respectively. If someone sent an important document using all three services, what is the probability of at least one of them delivering on time? The answer is 1 – (0.10 x 0.12 x 0.08) = 99.904%.
“So what have we noticed here? Continue reading
Innumeracy: Mathematical Illiteracy and its Consequences
by John Allen Paulos
Innumeracy refers to mathematical incompetence. Given the frequency of misleading social media memes that simply don’t add up, I’d say the book is as relevant today as it was when published in 1988.
“If the headline reads that unemployment declined from 7.1 percent to 6.8 percent and doesn’t say that the confidence interval is plus or minus 1 percent, one might get the mistaken impression that something good happened. Given the sampling error, however, the ‘decline’ may be nonexistent, or there may even be an increase.” Continue reading