Skillfully evaluating information relating to the best-fit placement of ability will tend to have three parts: analysis, psychology, and constraints exerted by principals (i.e. talent seekers and candidates). Accommodating any one of these in a placement process isn’t easy. Being good at all three is rare. Let’s look at the psychology part below.
The second part of a skillful evaluation is psychological. This part deals with talent seeker and candidate biases. These include over confidence, anchoring, confirmation, and relying on what is most recent. These biases arise automatically and are therefore very difficult to overcome by primary placement participants or secondary participants known as influential others. For example, when making a prediction, people tend to give disproportionate weight to whatever they have experienced most recently. In hiring, there is a strong tendency to choose talent seekers or candidates which have done well recently, those that seem to have a hot hand.
Also, how people make decisions when they are uncertain about gains and losses is at odds with classical economic theory. Because good placement process decisions can have bad outcomes, not everyone has a temperament that is well suited to making decisions about activities that involve luck. This emphasizes the importance of being willing to go against the crowd. Most agent-actors (i.e. placement facilitators) know that it is more comfortable to be part of the crowd than to be alone. But it’s also hard to distinguish yourself if you’re doing the same thing as everyone else. Skillful investors, for example, heed Benjamin Graham’s advice: “Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it—even though others may hesitate or differ.” However, it is insufficient to be a contrarian because sometimes the consensus is right. The goal is to be a contrarian when it allows you to gain an edge, and the calculator helps you ensure a margin of safety.
We’ll get into the constraints (Part 3 of 3) in the next post.
Do you think there are similarities between evaluating a person’s ability and evaluating a stock?