Tuesday, February 12, 2008

The Regression Fallacy and desicion making / problem solving

Following on from the last article, the question was why do make decisions when we do?

The answer is that usually it is because we discern that there is a need for action. (well yup-de-do, I hear you cry).

The problem is that at the moment we realise that action is required the problem has almost always been around for some time and it has just pushed through some form of threshold to become noticed.
Now problems like pain, the stock market, organisational or individual performance or just about anything else, don't increase in a smooth incremental way (see last article), even if they appear to. They tend to fluctuate. So we notice the problem as the fluctuation crosses a threshold and makes it important to us. We tend not to concentrate on problems when they are below (and building up to) a threshold.
What happens is that 'on average' such fluctuating issues tend to regress to mean, or average out. We notice only the peaks as these have the largest emotional impact. We therefore tend to make decisions to do something at a peak once the problem has crossed a threshold (which can be emotional or psychological but are rarely consciously defined - it just feels like a problem now!).
Because of the regression to mean effect - (fluctuating events will almost always come back off the peak and move back to an average situation again, usually below the threshold) we think that whatever action we took, like going to the doctor, buying or selling, or changing the organisation in some way is responsible for the change, when in fact even without the decision things were going to even out anyway!

So we tend to make decisions to do things when they peak and assume that the action we took rectified the situation when the problems reduce, even though in all likelihood they were going to decrease anyway. The flaw in the logic that leads to this situation is to assume that the extraordinary events happening right now are now the 'norm' or average for this time and situation. This occurs usually because what is happening in the here and now feels like reality - and this feeds us into a place where we take now as a predictive indicator of the future - if things carry on like this...

Which brings us nicely onto another interesting decision making phenomenon. The recency effect - read all about it in the next article.

You may be interested in a couple of workshops I am running in London on 4th March. See here.

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