I need to think more slowly!

Beautiful weather means a bit of summer reading and I'm currently half way through, Thinking Fast and Slow by Daniel Kahneman. You may have seen it on the bestseller bookstands, although I'm reading it on my Kindle - best ever invention for the beach apart from a cold beer. Daniel Kahneman is nearly 80 and widely regarded as the world's most influential psychologist - he won the Nobel Prize for his pioneering work in behavioural economics - exploring the irrational ways we make decisions about risk, especially in the financial sector, where strangely enough the world doesn't always behave like all those PhD mathematicians working for the investment banks think it should.

I think if you're in advertising or marketing you should definitely put this on your summer reading list. There probably is no other person on the planet who better understands how and why we make the choices we make and it's presented in a manner which is simple, engaging and profound.

I'm just reading the bit about 'halo effect' and 'outcome bias', and it pretty much confirms what I've come to suspect: that luck plays a huge part in businesses being successful. Kahneman explains how these two factors account for the huge appeal of books that look to draw operational principles from a systematic examination of successful businesses. 

Probably the best known of all that genre is, Built to last by Jim Collins and Jerry I. Porras. Indeed I read it many times myself when I was establishing a business more than twenty years ago. The book analyses eighteen pairs of competing companies in which one has been more successful than another. The authors claimed you could build a visionary company from learning from the culture, strategy and management practices of these winning companies and deliver outstanding results. Twenty years ago I certainly believed it and lapped it up but Kanheman explains to us that the comparison between firms that have been more or less successful is to a significant extent a comparison between firms that have been more or less lucky. And because luck plays a large roll, the quality of leadership and management practices cannot be inferred reliably from observations of success.

Now you may be sceptical and no self-respecting entrepreneur likes to admit luck played a significant role in their success but Kanheman backs this up with a lot of irrefutable evidence. Not long after the study was undertaken for Built to last, the profitability and stock returns between the outstanding firms and the less successful shrank to almost nothing.  In another example, a study of Fortune's 'Most Admired Companies' finds that over a twenty year period, the firms with the worst ratings went on to earn much higher stock returns than the most admired companies.

But this is just one small part of the book and many times you are quite simply gobsmacked when it reveals so powerfully, how and why we make the decisions and choices we do.

Happy reading!