To Notice and to Learn

Observations on ideas, human mind, and the world around us

Where intuition falls short–example: The discipline of finance

One of the recent trends I’ve seen in business over the past decade is an increasing reliance on “data”. You hear people talking about basing decisions on data, ‘crunching the numbers’, doing A/B testing, etc. This doesn’t guarantee being free from bias (indeed, flimsy rationalizations often cite ‘data’), but this is better than thinking that relying on our gut instincts is the best way to go. We’ve learned enough from the fields of psychology and cognitive science that biases are pervasive in how we think.

One of the purposes of developing disciplines is providing us tools to think in areas where intuition fails us or leads us astray, and one example is finance. Now I’m not talking about the industry of finance, a part of which has had some major failings due to greed, recklessness, and groupthink (read anything by Paul Krugman). Nor do I mean the finance function within most organizations (both for-profit and larger nonprofits). I mean the discipline of finance, which is closely tied to (some say a part of) economics.

Above is an excerpt of an interview with University of Michigan Ross School of Business professor Gautam Kaul, one of the most passionate advocates of finance (the discipline) you’ll ever hear. Gautam, a ‘mega-MOOC’ professor, has had somehere around 400K people enroll in his free Intro to Finance MOOC (next offered Feb. 3, 2014). I asked Gautam what the most common ‘Aha’ moments were for students in his MOOC. He pointed to the non-intuitive nature of compounding–this I expected. What was also nice is that he pointed to social science (possibly even referring to the budding field of neuroeconomics) research that showed in experiments that people lose their intuition when it comes to compounding. Finally was this gem: Gautam said that even after 25 years of teaching finance fundamentals, even he is still surprised by the results of compound interest (or discounting) calculations! You can’t get more un-intuitive than that–a deep expert being regularly surprised by a mathematical phenomenon.

You can see the full interview with Gautam on Class Central’s blog. And if you’ve always wanted to learn finance, take the plunge and sign up for his class!

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Categories: MOOCs, The Human Mind and Psychology

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