6 Tips to Foster Practical Wisdom in Decision Making

Aristotle might be best known for ‘inventing’ science (see my discussion of The Lagoon – how Aristotle invented science) and being a rather rational kind of chap. Although this is certainly true, and you can learn a lot from reading his treatises (his extant works read more like lecture notes than books) such as On the Soul, Physics, and Metaphysics, I stumbled upon the interesting Aristotelian term phronesis that translates as ‘practical wisdom’.

In The Nichomachean Ethics, Aristotle explains that practical wisdom (phronesis) is something else than scientific knowledge (epistēmē). In the sense that practical wisdom is rooted in action and can essentially create different realities (or outcomes) by taking action; scientific knowledge, instead, describes how reality is:

(..) since scientific knowledge involves demonstration, but there is no demonstration of things whose first principles are variable [such as decision making in reality], and since it is impossible to deliberate about things that are of necessity, practical wisdom can not be scientific knowledge nor art [technē, a technique, in the sense of making things]; not science because that which can be done is capable of being otherwise, not art because action and making are different kinds of things. The remaining alternative, then, is that it is a true and reasoned state of capacity to act (…).

This passage is pregnant with implications for managerial decision making. Although you should make use of scientific insights if they are available, and you should take into account knowledge on how to build real-life things (i.e. cars, bridges, consumer products, etc.), managerial decision making often has other, less tangible characteristics. For example, think about creating a strategy, an organizational structure or a company culture. Some characteristics of this kind of decision making that spring to mind are:

  • Uncertainty. You probably do not have all the knowledge and all the details. Outcomes cannot be predicted with certainty and are, thus, contingent.
  • Context-dependent. You are not taking a decision in isolation: How will my competitors act? What will my employees think and do? How will my stakeholders react?
  • Non-demonstrable outcomes. There are no scientific rules. There is not even an exact copy of the problem at hand.
  • Action-oriented. Your decision entails an actual follow-up in the real world; in a way, you will alter reality with your actions.
  • Multiple outcomes possible. Your actions will alter reality. But, the outcome is not fixed as it would be if there was scientific certainty. You change the outcome by taking different actions: you can create endless variations in strategies, organizational structures or cultures, for example.

Professors Ikujiro Nonaka and Hirotaka Takeuchi, in their Harvard Business Review article, call for ‘wise leaders’ to make decisions in such a context:

Dependence only on explicit knowledge prevents leaders from coping with change. The scientific, deductive, theory-first approach assumes a world independent of context and seeks answers that are universal and predictive. However, all social phenomena – including business – are context dependent. (…), the world needs leaders who will make judgments knowing that everything is contextual, make decisions knowing that everything is changing, and take actions knowing that everything depends on doing so in a timely fashion. They will have to see what is good, right, and just for society while being grounded in the details of the ever-changing front line. Thus, they must pair micromanagement with big-picture aspirations about the future.

Echoing Aristotle and Nonaka & Takeuchi, I therefore conclude that (managerial) decision making is not a science (epistēmē) and not a technique (technē). But, rather, it is applying practical wisdom (phronesis) to a situation that demands an analysis and a wise decision when facing uncertainties and incomplete information. Now, with Hardin, we can ask ourselves the question ‘What operations are implied by these statements?’ Or, ‘What does this mean in practice?’

In the following paragraphs, I will therefore offer 6 tips to operationalize the concept of practical wisdom.

Tip 1: use your mission and vision as a guiding principle in decision making

In taking on any decision, hold it against your mission and your vision. Your organization’s mission tells you the organization’s reason-of-being: why does your organization exist in the first place. The vision tells you what you are trying to achieve in the medium to long term. For more on one of the most important aspects of business (i.e. your mission), see my blog on business fundamentals.

Tip 2: get to the essence of a problem or a decision

Always ask yourself these questions: Why is there is a problem? What are we trying to solve? What are we trying to achieve? Nonaka and Takeuchi describe it as ‘relentlessly asking what the basis of a problem or a situation is.’ They go on to describe routines to do just that at two Japanese multinationals:

At Toyota employees ask “Why?” five times to get to the root cause. At Honda they ask the “A, A0, and A00” questions. A questions are about specifications – such as “What should the horsepower of this engine be?” A0 questions are about concepts – such as “What is the idea behind this engine?” A00 questions are about the essential goals of the project – such as “What is this engine for?”

Tip 3: understand the difference between epistēmē and phronesis, and when to use it

You don’t usually need scientific knowledge to make wise decisions (although it can be part of the data that you need for to make a decision, of course). Recognize the existence of practical wisdom (phronesis) as opposed to scientific knowledge (epistēmē). In a funny example, Nassim Taleb explains how relying on epistēmē in a situation where phronesis might be more suited, can lead to serious mistakes. He calls this the green lumber fallacy:

In one of the rare noncharlatanic books in finance, descriptively called What I Learned Losing a Million Dollars, the protagonist makes a big discovery. He remarks that a fellow named Joe Siegel, one of the most successful traders in a commodity called “green lumber”, actually thought that it was lumber painted green (rather than freshly cut lumber, called green because it had not been dried.) And he made it his profession to trade the stuff! Meanwhile the narrator was into grand intellectual theories and narratives of what caused the price of commodities to move, and went bust.

Tip 4: use heuristics (rules of thumb)

According to Taleb ‘heuristics are simplified rules of thumb that make things simple and easy to implement. But their main advantage is that the user knows that they are not perfect, just expedient, and is therefore less fooled by their powers.’ Using heuristics does not require scientific knowledge but can give you insight into what’s going on pretty quickly. In turn, you might be able to use these shortcuts for your decision making. A powerful heuristic, for example, is the 80/20 rule or Pareto principle that states that in many events 80% of the effects come from 20% of the causes.

Tip 5: develop your own heuristics through practice and experience

In practical wisdom, experience and practice take precedence over scientific rules. Through practice in the real world, you might be able to create your own heuristics about your specific (business) contexts and realities. In time, you will develop rules of thumb, or even a ‘feel’, for how things play out for your organization in a specific (Aristotle uses particular) situation. In The Nichomachean Ethics, this concept is illuminated as follows (emphasis mine):

Nor is practical wisdom concerned with universals only – it must also recognize the particulars; for it is practical, and practice is concerned with particulars. This is why some who do not know [i.e. do not have scientific knowledge], and especially those who have experience, are more practical than others who know; for if a man knew that light meats are digestible and wholesome, but did not know which sorts of meat are light, he would not produce health, but the man who knows that chicken is wholesome is more likely to produce health.

As an example, read why I use redundancy (as a heuristic) in project plans.

Tip 6: read widely

Now that we have established that (organizational) decision making is practical wisdom instead of science, you might want to practice as much as possible (and create your own practical heuristics along the way). Another way to expose yourself to as many situations as possible, and see how people react to and solve problems, is reading. Peter Drucker famously said that management is a liberal art. Liberal because management is about broadening general knowledge and experience; and an art because management is practiced by doing. So, pick up some philosophy, some history, and some literature once in a while to broaden your exposure to more Aristotelian particulars. A place to start? See last year’s holiday reading list.

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