Several years ago the Nobel laureate Daniel Kahneman published a book summarizing his life's work, entitled "Thinking Fast and Slow." It neatly explained the central tenets of his ideas on the psychology of judgment and decision-making that is now the basis of behavioral economics. Basically, sometimes we undermine ourselves by using an immediate, reactive type of reasoning for problems that require more consideration.
But there is another pathology when it comes to modern decision making. Sometimes we apply our own minds, when a statistical, or actuarial, or "big data" mindset is needed. Thinking "old" is that our intelligence is capable of divining all that is. Thinking "new" is that there are more things in heaven and earth than are dreamt of in our philosophy -- and with right tools and a rare dose of humility we might be able to suss them out to answer practical questions.
This should be music to the ears of those in management accounting. After all, the profession was founded on the idea that applying all variety of empirical evidence can deliver operational insights, business strategy, risk control and new value to the enterprise.
But listening to data rather than HIPPOS (that is, the "highest-paid person's opinions") is fraught with dangers. Funnily enough, seasoned veterans don't appreciate it when their decades of hard-won experience is declared useless in public meetings by juvenile stats geeks with more algorithms than tact. So a balance must be struck, a new compact, between the vets and the nerds. The mark of a business leader is to usher in a culture where that transformation can happen.
As it was described in the book Big Data:
"The biggest impact of big data will be that data-driven decisions are poised to augment or overrule human judgment. ... The subject-area expert, the substantive specialist, will lose some of his or her luster compared with the statistician and data analyst, who are unfettered by the old ways of doing things and let the data speak. This new cadre will rely on correlations without prejudgments and prejudice... This means that the skills necessary to succeed in the workplace are changing. It alters what employees are expected to bring to their organizations..."
"The shift to data-driven decisions is profound. Most people base their decisions on a combination of facts and reflection, plus a heavy dose of guesswork. “A riot of subjective visions -- feelings in the solar plexus,” in the poet W. H. Auden’s memorable words."
"To be sure, subject-area experts won’t die out. But their supremacy will ebb. ... This transforms the way we value knowledge, because we tend to think that people with deep specialization are worth more than generalists -- that fortune favors depth... But when you are stuffed silly with data, you can tap that instead, and to greater effect."
"Thus those who can analyze big data may see past the superstitions and conventional thinking not because they’re smarter, but because they have the data. (And being outsiders, they are impartial about squabbles within the field that may narrow an expert’s vision to whichever side of a squabble she’s on.) This suggests that what it takes for an employee to be valuable to a company changes. What you need to know changes, whom you need to know changes, and so does what you need to study to prepare for professional life."
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Kenneth Cukier is the Senior Editor for Data and Digital at The Economist, overseeing data analytics and digital platforms. He is also the host of The Economist's weekly podcast on technology and science, called "Babbage".
Kenn is the coauthor of "Big Data: A Revolution That Transforms How We Live, Work, and Think". It was a New York Times Bestseller and translated into 21 languages. It sold over 1 million copies worldwide (notably in China, where it won the National Library of China's Wenjin Book Award). It was a shortlisted finalist for the Financial Times Business Book of the Year in 2013. Kenn coauthored a follow-on book, "Learning with Big Data: The Future of Education".
Kenn is not just a visionary about data in society but a practitioner as well. At The Economist he is responsible for applying data to the paper's most high-profile initiatives like web traffic and subscriber retention. He "weaponises the data" (as he puts it) to drive substantial business value and organisational change.
Cukier is a trustee (board director) of Chatham House, the Royal Institute of International Affairs. He is a member of the Council on Foreign Relations.