Come along to the London Evening Lecture tonight on the topic of ‘Uncertainty and Cognitive Biases: Limitations of the Human Mind’
With Marc Bond, Rose & Associates LLP
The human brain is a wondrous but flawed instrument. The capacity of one’s brain to problem solve is immense. However, research has shown that, possibly because of evolutionary adaptation, it is an imperfect engine. This adaptation has led to instinctive, experience-based and emotional-based techniques for problem-solving and decision-making.
These heuristic methods are used to speed up the process of finding a satisfactory solution with little effort, and are often called “rule of thumb”, “educated guess”, “intuition”, or “common sense”. The majority of times these methods serve us well and lead to a satisfactory outcome. However, they also lead to irrational behaviours, misguided interpretations and poor decisions, otherwise known as cognitive biases. These biases allow for simple conclusions but often introduce systematic errors. Due to the complicated nature of modern life, many situations require more thorough analysis and critical thinking rather than the simplest and fastest route to a decision.
The E&P business is full of highly creative and intelligent people, leading to some outstanding successes. Decisions are often made in situations of high complexity and uncertainty, and unfortunately cognitive biases have occasionally led to costly decisions and results related to mistakes in reasoning that erode value. Some common themes that relate directly to the hydrocarbon industry include: poor performance in adequately expressing the volumetric range, production underperformance, project delays, and cost overruns. Although some of this can be credited to technical failings, motivational biases or circumstances beyond our control, often they can be attributed to cognitive biases.
There is an evolving list of cognitive biases that have been identified over several decades of research on human judgement and decision-making. Of the hundred odd listed biases, there are some that are directly related to the inefficiencies observed in our industry. In particular, the Anchoring, Overconfidence, Planning Fallacy, and Representative Biases have clearly impacted our interpretations, decisions and results.
Unfortunately there is no magic antidote that will inoculate us from these biases. We all find ourselves at the mercy of these distortions, including the “experts”. We can, however, reduce their impact.
The objective of this presentation is to increase the awareness of cognitive biases and their impact on judgements and decision-making, and offer some solutions from the research and our experiences to mitigtate their influence.
The Geological Society of London, tonight at 6.00pm