# Winning a Jackpot: How do you decide?

Situation: Imagine you are participating in a game show and after going through qualifying and elimination rounds, you have reached the finals.  The game-show host presents you three options A, B & C and you have to select one of the options which are the respective doors. One of the doors leads to a jackpot (say a Mercedes) and the other doors to an insignificant prize, say a tennis ball through each door. Now let us say you have selected option A. You are curious and excited to see if you have hit the jackpot. The host asks you to be patient, opens the door C and what you see is a tennis ball. Now he asks you whether you would still stick with option A or switch to option B? What would you choose and why?

When this question was put on different platforms like linkedin, what’sapp it was observed that 95% of the respondents voted for A. Now read on:

Analysis: Generally people tend to stick to option A, the reason being they would not like to regret their decision. If A is selected leading to a jackpot, then he would be happy; however if otherwise, then he  blames  the circumstances or his fate. But at least he has the consolation that he was firm in his decision. However if he were to choose B, and were to lose; he would regret his decision and also for not being firm in his decision making process.

Let us see how this situation can be seen from a statistical probability basis. Generally people make decisions through their self-interest and do not look at a situation objectively. For example we tend to discount the impact of the environment on our decisions. When a person selects option A, the  probability of success is 1 in 3. However when door C has been opened with a tennis ball, the probability of B has increased to 50%. Assume instead of 3 options you were given 100 options. And now 98 doors are opened without any jackpot. Would you still bat for A? Now you will appreciate that at the beginning of the game the probability of winning A was 1% but after the events have unfolded B has risen to 50%. So in a single event even though A and B has equal chances, over the long term it makes sense to switch over considering the environmental factors.

What happens if the game of ABC is played 100 times. or 100 people play this game simultaneously? Now you will understand that the human mind is not programmed to think in a statistical manner. During most of programs our clients ask us to train their executives to think out-of the box. But sadly they  are hardwired to think otherwise.

Most people tend to overestimate fatalities and death in aeroplane crashes more than car accidents even though statistically air travel is much safer than car travel. One of the main reasons people tend to assign higher risk to air travel is due to wide publicity in media to such rare events.

A survey was carried out in the US after the 9/11 disaster. More people died in the three months  on  roads than those killed in the aircrafts during  the twin tower tragedy.  People tend to fear dread risk of low-occurrence and high consequence events such as the twin tower attack. ( Dread Risk : September 11 and fatal traffic accidents, by G. Gigerenzer) .There are two types of risks,  actual risk and dread risk, the latter is more out of anxiety quite often overestimated than the actual risk. This in part may answer why people would still go on playing option A.

Another reason for dread risk is an illusion of control. A person driving a car feels more in control of the situation than while flying in an aircraft driven by someone else. Most of our unconscious processes control our thoughts and behaviour, which in turn creates an illusion of self- I or the soul. It also makes us feel that I exist, I am in control and thus I can make my own decisions. But the truth is otherwise. Most of the events in life are beyond our control; there is no self.  And to create that illusion we tell stories, we fabricate them saying how intelligent we are.

The above problem is called as a Monty Hall problem ascribed to the presenter of the famous game show in USA,  Let’s Make a Deal. Monty Hall Problem states that there are two errors people make while taking decisions:

1. They ignore the influence the external environment makes on their decision making and
2. How their perceptions are shaped by the external environment. In fact we feel we are making decisions in a neutral environment and our decision making is rational. We feel we are safe when we are in control of our destiny. Rituals and routine give us more control of the situation. However truth is otherwise, Dan Ariely, author of Upside of Irrationality says we are poor in risk analysis and are irrational animals.

# Importance of Tacit Knowledge for Organizational & Individual Growth – Part I

The two crucial challenges faced by today’s organizations in remaining competitive and thus  profitable are:

1. Cut-throat Competition: I was talking to one of my clients who is in carbide tools, mould and die business. Twenty years back there were only 3 players. (two from Sweden and one from Israel) Today there are more than 20 players.(including  those from  Korea, Japan etc.) This has brought down the average margins by almost 50%
2. Attracting and Retaining Talent: High competition leads to higher levels of attrition. It is assumed that a new executive starts contributing to the organization only after 7-8 months. Later he starts earning his salary and the real contribution starts only after 18-20 months. However in the present context, by the time the organization expects the employee contribution; the latter has already started looking out for greener pastures elsewhere.

Peter Drucker, the eminent management thinker predicted 40 years back that the future belongs to  knowledge workers and firms can have a competitive advantage only through effective knowledge management. There are three ways how firms can  remain  competitive:

1. Generate new knowledge continuously.
2. Disseminate the new knowledge across the organization in a systematic manner.
3. Apply the new knowledge to develop new technologies , products and services.

There are two types of knowledge:

1. Explicit Knowledge: Is the one which is available through systems, processes, technology, patents etc. This knowledge to a greater extent can be shared. Through technology transfer it can be acquired.
2. Tacit Knowledge: This type of knowledge is with the individual and does not reside in SOPs. It is also context-specific. This is acquired through experience. The term was coined by Michael Polanyl in 1958 who said, “we can know more than we can tell.” It can be defined as skills, ideas and experiences possessed by an individual. Quite often they are not codified, written or verbalized and hence difficult to transfer from one person to the other. Examples of tacit knowledge are playing a musical instrument, preparing a signature dish, driving car etc.

Three decades back I was working with a renowned electrical consultant called P.H. Padhye in Mumbai  who was having a consultancy assignment  ( paralleling of existing Petbow and Skoda DG sets with the MSEB supply) with Ceat Tyres.  Once the plant had tripped off and the entire production had come to a grinding halt. The maintenance head and others were struggling to solve the problem but could not succeed even after 24 hours. When we went to the plant,  Mr. Padhye told the maintenance head, “ the setting of the speed governor of your alternators are wrong and that is why the tripping has occurred.” The problem was sorted out in half an hour. This is tacit knowledge.  Mr. Padhye was a very knowledgeable person. Once after a marathon session on electrical circuit design, I asked him,” how do you know so many things?” He replied, “after 32 years of experience in the industry, I know what I don’t know.”

Many of you must have heard the apocryphal story where the boiler of a steam turbine had malfunctioned. An expert mechanic  was called . He asked for a hammer hit it at the right spot and lo behold… the boiler started working.. When the mechanic submitted the bill of Rs. 10,000 /- The finance manager was quite perplexed. When asked for the breakup of the  bill for a task which did not take more than 5 minutes,  the mechanic replied as follows:

1. 100/- for hitting the hammer
2. 9900/- for knowing where to hit and thus solving the problem.

You will observe that the former is explicit knowledge whereas the latter is  tacit knowledge.

You will appreciate the importance of tacit knowledge through this example. recognising the face of a person in  a crowd is tacit knowledge;  whereas to  recollect the other details is explicit knowledge.  Only though experience this tacit knowledge is acquired. Every evening when the employees leave the office such tacit knowledge is leaving the organization and when a talented and experienced employee leaves the organization; such tacit knowledge is lost forever.

At a number of places I see that there are no jobs available for executives who are 45+.  This shows our irrational bias towards explicit knowledge (read technology) which youngsters seem to possess. But we fail to realize that  a fast-changing technology can even make a young executive redundant equally fast. What  is important is not so much as knowing a  specific technology but the ability to learn new things and the organization having such workforce (who are willing to learn continuously)  is called as a learning organization. A number of organizations feel cost to be  the only driver to retain a competitive advantage and replace older executives.

E.F. Schumacher in his book, Small is Beautiful has something relevant on this topic. Quote:

Education can help us only if it produced ‘whole man’. A truly educated man is not the one who knows a bit of everything, not a man who knows all the details of all the subjects (if such a thing is well possible). The whole man in fact may have little detailed knowledge of facts and theories (read explicit knowledge). He may treasure the Encyclopaedia Britannica because SHE KNOWS and HE NEED NOT, but he will be truly in touch with the centre.

He will not be in doubt about his  basic convictions, about his views on the meaning and purpose of his life. He may not be able to explain these matters in words; but the conduct of his life will show a certain sureness of touch which stems from his inner clarity. (read tacit knowledge)

Unquote (italics mine)

What are the different ways the tacit knowledge can be effectively harnessed shall be looked into my next blog…