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In defense of complex models of decision-making (i.e., wisdom)

Learning to make sound decisions in the face of uncertainty has to be the most important skill a manager person can have. Knowledge of what worked in the past is fundamental. Ability to recognize potential bias is the hallmark of a more experienced decision-maker. But nothing can make uncertainty disappear.Tq131118db We have to decide in the face of uncertain outcomes. In the best decisions, we confront uncertainty, accept it and make it a part of the plan.

In Thinking, Fast and Slow, Kahneman defends the introductory economics texts where only older, simpler models of decision making are presented.

There are good reasons for keeping prospect theory out of introductory texts. The basic concepts of economics are essential intellectual tools, which are not easy to grasp even with simplified and unrealistic assumptions about the nature of the economic agents who interact in markets. Raising questions about these assumptions even as they are introduced would be confusing, and perhaps demorializing. It is reasonable to put priority on helping students acquire the basic tools of the discipline.

Unfortunately many students never move beyond the introductory class in economics. (I never did.) They are left with an incorrect understanding of how people make decisions. This approach is unconscionable. For example, statistics was one of the most difficult courses I ever had to take, and I'll never truly grasp probability theory, but I learned to respect the complexity, and I found tools that helped me deal with it.

Correct understanding of how people make decisions comes as close to wisdom as any form of knowledge. Let's start spreading it further.


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