Scenario Planning- Psychological Perspective

Introducing Scenario PlanningPart-2

Introducing Scenario PlanningPart-2

Aziz Alizadeh

Psychological Perspective

Why We Need Future Study?

All our knowledge isabout the past, but all ourdecisions are about thefuture.

Most of what we need to know to make good decisions today isoutside our comprehension: we don’t even know it’s there.

Change: Chaos, Complexity & Uncertainty

• Change is only permanent thing in the world.• Companies and countries rise and fall in period of change

Uncertainty, chaos and complexity are considered to be simplyalternative names for our ignorance.

George Cowan, head of the Santa Fe Institute:

I think it’s obvious that economics operates out of equilibrium . Youshouldn’t look foe stable states, you should look for transitions and forthe laws that govern them.

Map of the Organizational Ignorance

• Uncertainty: not having enough information• Complexity: having to process more information than you can

mange or understand.• Ambiguity: not having a conceptual framework for interpreting

information.• Equivocality: having several competing or contradictory conceptual

frameworks.

• Uncertainty: not having enough information• Complexity: having to process more information than you can

mange or understand.• Ambiguity: not having a conceptual framework for interpreting

information.• Equivocality: having several competing or contradictory conceptual

frameworks.

Organizational Ignorance

Equivocality

It is difficult to look at the same information from different perspectives.

How companies respond to fundamental changes?

• Relying on agility and avoid any long termcommitments - give up on the long view.

• Make good guess at what’s coming, gamble on it andhope for the best.

• Third is to think – really think – ahead.

• Relying on agility and avoid any long termcommitments - give up on the long view.

• Make good guess at what’s coming, gamble on it andhope for the best.

• Third is to think – really think – ahead.

In a stable environment, or in a wildly erratic one, often the best policy isCONSERVATISM. But in an environment that shifts permanently to newstate, or progresses steadily away from the old state, ADAPTATION mustbe swift and sure

Dealing with Change

AnalyticalJudgmental/SubjectiveAssurance

Insurance

Modeling

Monitoring

SuggestionBox

Dealing With change

Active(Before the event)

Passive(After the event)

Anticipatory(Forecasting)

Defensive(Insurance)

Do nothing

Subjective Probability Judgments

• SPJ: The probabilities that people generate in their ownminds to express their uncertainty about the possibilityof the occurrence of various events or outcomes.

Tools for SPJ

Intuition Reasoning/ Heuristic

Two Systems of SPJ

Intuition: Thoughts and preferences that come to mind quickly and without

much reflection

Heuristic: “Rules of thumb” that human use to perform abstract reasoning in

cognitively economical ways.

Comparing Two Systems of SPJ

Maps of Bounded RationalityA Perspective on Intuitive Judgment

Systematic biases or errors in judgment:

1. Representativeness Bias2. Availability Bias3. Anchoring and adjustment Bias

Systematic biases or errors in judgment:

1. Representativeness Bias2. Availability Bias3. Anchoring and adjustment Bias

Representativeness Bias

• People are insensitive to sample size

They draw strong inferences from small number of cases.

• People have a misconception of change: Gambler’s Fallacy

They see a normal event and think it rare:

They think chance will correct a series of rare events

• People have a misconception of regression:

they see rare event and think it normal:

they deny chance as a factor causing extreme outcomes.

• People are insensitive to sample size

They draw strong inferences from small number of cases.

• People have a misconception of change: Gambler’s Fallacy

They see a normal event and think it rare:

They think chance will correct a series of rare events

• People have a misconception of regression:

they see rare event and think it normal:

they deny chance as a factor causing extreme outcomes.

Availability Bias

• People tend to be biased by information that is easier to recall:

They are swayed by information that is vivid, well publicized, orrecent.

• People tend to be biased by example that they can easily retrieve:they use these search examples to test hypotheses

• People tend to correlate events that occur close together

• People tend to be biased by information that is easier to recall:

They are swayed by information that is vivid, well publicized, orrecent.

• People tend to be biased by example that they can easily retrieve:they use these search examples to test hypotheses

• People tend to correlate events that occur close together

Anchoring and Adjustment Bias

Used to estimate value or size of quantityStart from initial value and adjust to final estimate

• People are influenced by an initial anchor value

anchor may be unreliable, irrelevant

adjustment is often insufficient

• People overestimate probability of conjunctive events

• people underestimate probability of disjunctive events

• Anchor may be qualitative:

People from initial impressions that persist and are hard to change

• People are influenced by an initial anchor value

anchor may be unreliable, irrelevant

adjustment is often insufficient

• People overestimate probability of conjunctive events

• people underestimate probability of disjunctive events

• Anchor may be qualitative:

People from initial impressions that persist and are hard to change

Anchoring Bias

Impression resist change

Manifestation of Biases

• When judging probability, people can locate the source of theuncertainty either in the external world or in their own imperfectknowledge.

When assessing their own uncertainty, people tend to underestimate it. Thetwo major manifestation of this tendency are called

Overconfidence, and Hindsight Bias

When assessing their own uncertainty, people tend to underestimate it. Thetwo major manifestation of this tendency are called

Overconfidence, and Hindsight Bias

Overconfidence concerns the fact that people overestimate how much theyactually know.

Hindsight Bias concerns the fact that people overestimate how much theywould have known had they not possessed the correct answer or prediction.

Other Systematic Bias And Error In Organizational Planning

• Group thinking: People with homogeneousbackground often constitute management teams i.e.same university degree, middle class people, familiesand relatives.Such cohesive groups tend to develop rationalization for theinvulnerability of the group’s decision or strategy.

• Confirmation Bias: natural tendency of analysts tofocus on information that confirms rather than discreditsexisting hypotheses, or to be unduly influenced bypremature consensus with analytic groups close at hand.

• Group thinking: People with homogeneousbackground often constitute management teams i.e.same university degree, middle class people, familiesand relatives.Such cohesive groups tend to develop rationalization for theinvulnerability of the group’s decision or strategy.

• Confirmation Bias: natural tendency of analysts tofocus on information that confirms rather than discreditsexisting hypotheses, or to be unduly influenced bypremature consensus with analytic groups close at hand.

Why Organizations Are Slow To Adapt And Change

Increase stressCoping behavior:

High perceived - Bolsteringlevel of threat - Procrastination

- Buck passingLevel of perceived - Escalationenvironmental threat?

Strategic inertia• Confirmation Bias Low perceived - unconflicted adherence• Overconfidence level of threat to business as-usual• Group thinking

Low stress level

Increase stressCoping behavior:

High perceived - Bolsteringlevel of threat - Procrastination

- Buck passingLevel of perceived - Escalationenvironmental threat?

Strategic inertia• Confirmation Bias Low perceived - unconflicted adherence• Overconfidence level of threat to business as-usual• Group thinking

Low stress level

Scenarios and Cognitive Science

• Humans receive a massive amount of incoming sensory dataTerabytes worth. Most is immediately discarded, ignored, orabstracted away by neurological machinery.

• When new sensory data is abstracted, converted into symbolicformat, and archived in long term memory.

Important Question:

Human brain according which template or pattern filter the Data?

1. Mental Models

2. Time Paths

Concept of Mental Model

• Mental Models serve critical function in thinking asthey allow individuals to give meaning to, and thusefficiently process, what otherwise would be morassof data. But they can cause us to overlook, reject, orforget important incoming information that is not inaccord with our assumptions and expectations.

• Mental models are resistant to change, even in theface of changing external circumstances.

• In analyzing complex problems, individuals rely on“what has worked before” and rarely updateframeworks (mental models) even when they can nolonger explain new data.

• Mental Models serve critical function in thinking asthey allow individuals to give meaning to, and thusefficiently process, what otherwise would be morassof data. But they can cause us to overlook, reject, orforget important incoming information that is not inaccord with our assumptions and expectations.

• Mental models are resistant to change, even in theface of changing external circumstances.

• In analyzing complex problems, individuals rely on“what has worked before” and rarely updateframeworks (mental models) even when they can nolonger explain new data.

Importance of Mental (Patterns) Models

Time Paths And Perceiving The Change Signals

• Human brain does not engage inpredictions; it engage in possible futures,in terms of “if that happens then I willtake this action.” these are Time Pathsinto an anticipated future.

Dr. David Ingvar

1924-2000These possible time paths are stored in human“memory of future”

Dr. David Ingvar

1924-2000These possible time paths are stored in human“memory of future”

If a particular information signal receivedfrom environment is relevant to TimePaths, data gets meaning and informationbecomes knowledge, otherwise it will beignored.

Why Some Companies Are Unable To Detect Signals Of

Change?

• People of organization cannot see what their mind havenot experienced before.

• They will not see what calls forth unpleasant emotions

• People of organization cannot see what their mind havenot experienced before.

• They will not see what calls forth unpleasant emotions

They have fewer Time Paths because they considerplanning, dealing with the future, as a process ofprediction, and the trouble with prediction is that it isalways singular.

Why prediction for managers is not helpful?

• They have to convinced themselves of the truth of theprediction.

• They have to convince others in the company tobelieve in it.

• They all have to agree on what it all means, since thefuture is almost unthinkable.

• They have to convinced themselves of the truth of theprediction.

• They have to convince others in the company tobelieve in it.

• They all have to agree on what it all means, since thefuture is almost unthinkable.

Accumulation of those three factors makes it impossible for them to acton the prediction.

Two Intermediate Steps Between Reception Of The SignalsAnd Action

• They have to figure out what the signals means for theircompany and arrive at some conclusions.

• They have to muster enough courage to act on theseconclusions.

Receiving a signal, embedding it into the mental picture that peoplehave of their internal and external world, drawing conclusions, andfinally acting on those conclusions are the four elements of decisionmaking process in organizations.

These steps are Learning process as well.

Key Elements of Scenario Learning

Scenario Learning involves two critical elements:1. Constructing or developing scenarios2. Integrating the content of scenarios into decision making

Scenario learning not only emphasizes the role of scenarios asgenerator of thoughts and reflections. But also explicitly challengesthe conventional wisdom, historic way of thinking and operatingsystems, and long held assumptions about important issues. Learningimplies discussion and dialogue.

What is Scenario Planning?

Scenario Planning offers a way to embrace uncertainty (byexploring alternative futures) and to navigate throughcomplexity (by invoking the organizing power of storytelling)

Scenarios Deals with Two Worlds

Why Scenarios?

The Essential Starting Points

THANKS FOR YOUR ATTENTION