October 12, 2012

Foxy Hedgehogs: "The Signal and the Noise"

Patrick Marren
Partner

Nate Silver's book The Signal and the Noise makes a darned good case for scenario-based strategic planning. 

In it, he raises the old distinction between "hedgehogs" and "foxes," from a fragment by the ancient Greek philosopher Archilochus via Isaiah Berlin: "The fox knows many little things, but the hedgehog knows one big thing."

"Foxes" in this dichotomy are nonideological and open thinkers not wedded to any one theory; they are comfortable with "nuance, uncertainty, complexity, and dissenting opinion."

"Hedgehogs," by contrast, are "Type A personalities who believe in Big Ideas - in governing principles about the world that behave as though they were physical laws and undergird virtually every interaction in society."

The problem with hedgehogs is that more data does not make them better predictors: "[H]edgehogs can take any type of information and have it reinforce their biases." Foxes, on the other hand, "have practice in weighing different types of information together [and] can sometimes benefit from accounting for the qualitative along with quantitative factors."

Foxes, Silver says, get better at forecasting with experience; hedgehogs get worse. 

Silver: "'Foxes often manage to do inside their heads what you'd do with a whole group of hedgehogs,' [Philip E.] Tetlock, [who popularized the fox/hedgehog distinction,] told me. Instead of asking questions of a whole group of experts, they are constantly asking questions of themselves. Often this implies that they will aggregate different types of information together - as a group of people with different ideas about the world naturally would - instead of treating any one piece of evidence as though it is the Holy Grail."

Scenario-based strategic planning does this in a systematic way. Rather than assuming that the world is governed by one set of rules, we scenario planning consultants remain, as far as it is possible for humans, agnostic and unbiased with respect to first principles. If there are serious differences of opinion about reality, we will try to represent each "governing principle about the world" by a separate scenario.

Recently we did a set of scenarios for clients in the maritime realm. Some of these people strongly believe that human-caused global warming is real, accelerating, and that its pace and causes are settled science. That "hedgehog" point of view got a scenario to represent it. Other "hedgehogs" believed that global warming, if it is real at all, is not caused by humans and may even reverse. That point of view got its own scenario as well. In between these points of view we wrote three other scenarios, each with a nuanced middle-ground account of climate change. 

Now, is human-caused global warming real? We have our opinions on that. But even if it is, experience tells us scenario planners that it's quite possible for some large-scale phenomenon to sweep in out of nowhere to either reverse it or make it somehow irrelevant. Studies, for example, have shown that soot from Chinese and Indian coal-burning power plants is getting up into the high atmosphere and blocking sunlight, blunting the greenhouse effect. Or some countervailing mechanism could come along to halt or reverse the process. After all, just five years ago respected scientists were saying that Arctic Ocean sea ice could completely disappear, seasonally, by September 2013. The Arctic sea ice did reach a new low in terms of extent of coverage in September 2012, but that extent was still 1.32 million square miles. Not too likely that it will completely vanish next summer. (But the trend continues downward - the previous low, in 2007, was 1.61 million square miles.)

So we can see each of the four or five scenarios of the future we typically concoct with our clients as separate, mutually contradictory "hedgehogs" each conceitedly blasting forth its own version of what the future is going to bring.

We actually love the hedgehogs, to be honest. Strong opinions make for interesting discussions and great insights come from the clash between them. 

But Silver's book is a superb read, ranging from Moneyball-type baseball analysis to presidential political polling (he is most famous these days for his Five Thirty Eight blog, in which he makes sophisticated predictions about the current elections), to poker and basketball betting and global warming and weather forecasting and epidemiology. It's a great book - you should read it.

But since Silver is tough on hedghogs and seems to love foxes, I have bad news for him. 

People who subscribe to dichotomies of the "There are two types of people in the world" genre are by definition hedgehogs. A hedgehog came up with the dichotomy, after all. It's what hedghogs do. There is a hedghog - and a fox - in each of us. 

Maybe we can define scenario-based strategic planning as a way to turn hedghogs into foxes...or maybe just a way to make a hedgehog look foxy.

Thoughts?