Analytic Decision-Making Is Worse than Random More Often Than You Think!

Scientific thought and literature sometimes contains disturbing concepts. A number of papers have shown, for example, that on financial markets, random stock picking is better than informed choices made by any “professional” investor.

Decision making: should you not throw dices instead of over-analyzing?

Here’s another fun example of such study: how Orlando the cat beat professionals in a contest. The article goes on to explain that it is not an isolated study. And that in fact, those investors which we admire because of the high return on their investment they generate, might just have been lucky (over the short period where we observe them). As the article mentions, Daniel Kahneman, Nobel prize in economics, showed over a sample that “the correlation between those fund managers who were successful in one year and those who were successful in the next year was close to zero (0.01) over eight years“.

Financial markets are the archetype of the complex system. In such a system it seems that random decision-making is better then (excessive) analysis.

When I presented this idea to a room full of engineers a few weeks ago they probably took me for a fool. Yet as the complexity of our world increases, it is not certain that the best way to take the right decisions is to enhance further our analytic models, which will be less and less representative of reality.

Have some dices in your pockets. In complex situations, throwing them might be the best decision-making method!