Parallel Thinking and De Bono’s Six Hats

This is how a group of people can solve a problem without arguments.

Think about all the times you’ve been in a team meeting, dealing with some issue. Everyone goes in with the best intentions, but the team members quickly form their own ideas of what needs to be done, argue about why everyone else is wrong, then eventually go with whoever won over the most (or shouted the loudest).

The six thinking hats are a more efficient way of solving problems than arguing. In an argument, each side picks a conclusion, finds evidence to support it, and ignores or discredits any evidence to the contrary. Emotions take hold as each side aims for the glory of being right and the thrill of defeating an adversary. It sounds like a terrible way to solve problems constructively. Yet our entire political and legal systems are based on it.

The alternative to arguments is ‘parallel thinking’. Instead of each individual taking different sides, all individuals take the same side and look in the same direction, in any one moment.

That’s where the imaginary hats come in. Each hat is a way of looking at an issue. They come in pairs, but you can only wear one at a time. And in a group discussion, everyone wears the same hat at the same time.

White Hat and Red Hat

The white hat is where the team establishes what information is known and what information is needed. This is about facts – not interpretations, judgements or opinions.

“Market research shows demand for coffee flavour biscuits is growing.”

The red hat is where intuition, feeling, opinions and emotion come in. They can be based on experience or just a hunch.

“I feel our current range of biscuits is boring and old-fashioned.”

Black Hat and Yellow Hat

The black hat is about caution and critical thinking. Everyone should be looking for danger signs, something that could go wrong.

“If we introduce a coffee flavour biscuit, our rival might copy us.”

The yellow hat is about sunny optimism. Finding possibilities for putting a plan into practice, and searching for the benefits.

“If our rival copies us, that could help grow the whole market so we’ll still benefit.”

Green Hat and Blue Hat

The green hat is about being creative. Coming up with new ideas, options and ways of looking at things.

“How about adding chocolate chips to the biscuits?”

The blue hat is about control and discipline. It ensures the meeting remains structured rather than free-flowing (which will probably deteriorate into an argument), and as a result the leader of the meeting wears the blue hat at all times. The discussion may start and end with everyone wearing the blue hat, first to define the problem and lastly to make a decision.

“We’ve agreed the next step is to develop a coffee flavour chocolate chip biscuit.”

Watch out for

While some tests and teamwork models assign people to different categories based on their strengths, De Bono says this restricts them rather than getting the best out of them. The advantage of the six hats is everyone tries a bit of everything, and comes up with ideas no-one else would’ve thought of.

“There is a huge temptation to use the hats to describe and categorize people, such as ‘she is black hat’ or ‘he is a green-hat person’. That temptation must be resisted.”
Edward de Bono, Six Thinking Hats, p. 6

Did you know? De Bono coined the phrase “lateral thinking.”

With thanks to Ivan Edwards who wrote most of this post. Thanks Ivan!

Resources

De Bono, Edward (1985), Six Thinking Hats, 2016 edition, Penguin Life

Mimetic Desire: a philosophy for asset bubbles and FOMO

Tulip Mania. The Roaring Twenties. The Dotcom Bubble. Bitcoin.

Why do we like the things we do? René Girard may have the answer.

Everyone knows what an asset-price bubble looks like after it crashes. In fact, everyone looks back and says the crash was inevitable, though no-one thinks to mention that before it happens. But the causes of bubbles are still disputed. How can the perceived value of an asset rise and fall so rapidly — and why does it keep happening?

The value of an asset fluctuates because the desire for the asset fluctuates. René Girard’s mimetic theory gives us an idea about why this happens. Girard said that, beyond the basic needs for survival, there is no such thing as true, authentic desire. No-one wants a new car or a new haircut because they’re just following their heart. Desires are motivated solely by what other people want — we mimic the people we admire and decide we want the same things as them.

This gets us into bubble-like situations because the desires become part of a self-perpetuating cycle. It goes something like this:

Mimesis
I admire some guy getting rich from bitcoin and I want to be like him. He is my model.
Mimetic desire
To be like him, I desire the same things he desires. If he buys bitcoin, I buy bitcoin as well.
Mimetic rivalry
He sees other people copying him, proving he was right to buy bitcoin. He desires bitcoin even more, meaning my desire also intensifies. We’re in competition for something in limited supply, so the price goes up and up. Other people see what’s happening and start admiring the model as well.
Mimetic violence
The rivalry and the emotion become more important than the original desire. The competition becomes so intense that everyone forgets why they wanted bitcoin in the first place. All they know is they have to have it — at any cost.
Scapegoat mechanism
In Girard’s view, this rivalry stops short of total escalation because of a collectively agreed-upon scapegoat, an other that can be blamed for the chaos and strife. Usually it’s an external actor, like a central bank threatening new regulations or raising interest rates. This scapegoat helps dissipate and direct the anger when the bubble pops and fortunes are lost.

The main lesson? Don’t buy something just because everyone else is buying it. If you didn’t want bitcoin at $5,000, why would you want it at $50,000? Remember, there’s no such thing as ‘just following your heart’.

Watch out for

Mimetic theory has some similarities with Maslow’s hierarchy of needs. Both recognise the differences between basic and higher needs, and both show us how we always desire that which is just out of reach — and that these desires can never be truly satisfied. But while Maslow presented his idea as an individual pathway to achievement, Girard saw cycles of people copying and fighting each other. Maybe it’s time for a new theory of motivation combining the two.

With thanks to Ivan Edwards who wrote most of this post. Thanks Ivan!

Resources

Bowyer, Jerry (November 2015), René Girard, ‘The Einstein of the Social Sciences’, Forbes
Girard, René (1972), Violence and the Sacred, 2005 edition translated by Patrick Gregory, Continuum Books
Legler, Janis (August 2020), Bitcoin is a game of musical chairs – and the music is stopping, City A.M.
McDonald, Jamie (February 2021), The Anatomy of Financial Bubbles , Yahoo Finance

Nudge Theory: how a little psychology can go a long way

This is how you can change people’s behaviour without anyone realising.

In a perfect economy, people faced with a decision would choose the best, most rational option for them, every time. What’s more, the more choices you give to people, the better their decisions will be.

We all know the world doesn’t work like that. If it did, I would buy an apple when I’m hungry instead of half price crisps at the checkout. Therefore, the solution is to ban crisps so everyone makes better choices. Right?

Nudge theory rejects both of these extremes. Firstly, it says that the way choices are presented affects the decisions people make. Secondly, the best way of helping people make good decisions is not by restricting their choices, but changing how they are presented — nudging them.

To understand how to present choices, we need to understand how people make decisions. Richard Thaler and Cass Sunstein, the creators of nudge theory, gave a few examples of what sways us when faced with complex decisions:

Loss aversion
As prospect theory shows us, people hate losses more than they like gains. Telling someone they’ll lose hundreds of pounds if they don’t switch their car insurance is more effective than saying they’ll gain hundreds of pounds if they do.
Status quo bias
People tend to stick with default options, because that’s easier and it’s assumed the default is the best. When workplace pensions changed from ‘opt-in’ to ‘opt-out’, millions more people started saving for retirement. The choices are exactly the same, but the decisions have changed.
Following the herd
If you can convince someone that everyone else is doing something, they’re more likely to do it. It’s why adverts claiming a product is the most popular in the country are so effective. And why voter-turnout campaigners should stop loudly complaining that lots of people don’t vote.

Advertisers and the food industry have known how to influence people for decades — that’s why the supermarket puts half price crisps at the checkout instead of apples. How can nudging be used for good? Thaler and Sunstein call for nudges in situations that are “most likely to help and least likely to inflict harm.”

People will need nudges for decisions that are difficult and rare, for which they do not get prompt feedback, and when they have trouble translating aspects of the situation into terms that they can easily understand.
Richard Thaler & Cass Sunstein, Nudge, p. 72

Watch out for

Nudge theory became influential for policymakers around the world, especially in the administrations of Barack Obama (for which Sunstein worked) and David Cameron. So unsurprisingly, it’s controversial.

One of the major criticisms is that nudges may be used as a cheap and ineffective substitute for policies that are more ambitious or costly. The UK government was criticized for relying on nudges and behavioral science at the start of the Covid outbreak while other countries were locking down. Sunstein himself said in 2014 that “nudges are not a sufficient approach to some of our most serious problems”.

With thanks to Ivan Edwards who wrote most of this post. Thanks Ivan!

Resources

O’Brien, Hetty (May 2019), Cass Sunstein and the rise and fall of nudge theory, New Statesman
Thaler, Richard H. & Sunstein, Cass R. (2008), Nudge: Improving Decisions About Health, Wealth, and Happiness, Yale University Press
Selinger, Evan (July 2013), When Nudge Comes to Shove, Slate
Sunstein, Cass (April 2014), There’s a backlash against nudging — but it was never meant to solve every problem, The Guardian
Yates, Tony (March 2020), Why is the government relying on nudge theory to fight coronavirus?, The Guardian

Prospect Theory: an ‘S’ curve and the relatively muted joy of winning

The frame of reference is essential to understanding why we make the decisions we do.

This is the model that explains loss aversion and risk-seeking when we’re losing. The famous “S” curve addresses flaws in Daniel Bernoulli’s expected utility theory that he proposed way back in 1738 – a theory which had remained unquestioned for more than two centuries until two psychologists came along in the 1970s.

Here’s a generous deal: I’ll give you a choice between a guaranteed £500, or we can toss a coin for £1000. You’d probably bank your £500. Thank you very much.

Now imagine I gave you a different deal. You can pay me £500, or we can toss a coin: either you pay me £1000 or you pay me nothing. You’d probably take your chances. Anything to wipe the smile off my face.

Each option has the same monetary value, but the decision you make is different, depending on whether you’re gaining or losing money. The reason for that lies in prospect theory. Understand this, and you can understand why people and organizations make the decisions that they do.

Prospect theory was first published by psychologists Daniel Kahneman and Amos Tversky in 1979. It aimed to challenge the previously accepted idea that people make rational decisions based on probability and the expected utility of an outcome as explained by Bernoulli. Instead, prospect theory accommodates the different attitudes to risk we have for gains and losses. Essentially, “losses loom larger than gains.”

Bernoulii’s theory assumes that the utility of wealth is what makes people more or less happy, but it lacks a vital moving part: the reference point from which gains and losses are evaluated.

The prospects of gains and losses are what drive the decisions made by companies and their managers every day. Businesses that are performing below expectations will be reeling from the losses and turn to increasingly risky strategies to try to recover. That may lead to throwing good money after bad, like a gambler making increasingly outlandish bets at the end of a day of heavy losses.

On the other side, everyone is loss averting to some degree. Loss aversion is often heightened in business settings when managers feel there’s no room for failure. For example, a speculative investment of £1 million for a 50% chance of a £10 million return would have an expected value of £4.5 million and should be an investment that’s made by any objective standard but might be rejected by the manager because she fears losing her job if the investment fails.

You can measure the extent of your aversion to losses by asking yourself a question: what is the smallest gain that I need to balance an equal chance to lose $100? For many people the answer is about $200, twice as much as the loss. The “loss aversion ratio” has been estimated in several experiments and is usually in the range of 1.5 to 2.5. This is an average, of course; some people are much more loss averse than others.
Daniel Kahneman, p.284. Thinking, Fast and Slow (2012)

Watch out for

Whether an event is considered a gain or a loss depends on expectations rather than reality. If my share portfolio rises 10% in a year when my friend gains 20%, that will feel like a loss. If I only lose a bit of money in a market crash, that will feel like a win. This ‘reference point’ between gains and losses can change over time, or from person to person.

Kahneman states that like Bernoulli’s theory, Prospect theory has flaws of its own. Most notably, the reference point usually has a value of zero, which can lead to some absurd results. It means that winning nothing when you have a 90% chance of winning $1 million and a 10% chance of winning nothing is assigned the same value as losing when you buy a lottery ticket. Prospect theory doesn’t take into account disappointment or regret.

With thanks to Ivan Edwards who wrote most of this post. Thanks Ivan!

Resources

Bendickson, J., Solomon, S., & Fang, X. (Summer 2017), Prospect Theory: The Impact of Relative Distances, Journal of Managerial Issues
Kahneman, Daniel & Tversky, Amos (March 1979), Prospect Theory: An Analysis of Decision Under Risk, Econometra
Kahneman, Daniel, (2012), Thinking, Fast and Slow, Penguin Books
Newell, Benjamin R.; Lagnado, David A. & Shanks, David R. (2007), Straight Choices: The Psychology of Decision Making, Psychology Press