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Harvard Business Review, Daniel Kahneman, and APT

November 1st, 2016 | Posted by Monica Wojciechowski in Uncategorized - (Comments Off on Harvard Business Review, Daniel Kahneman, and APT)

What do Harvard Business Review magazine, a Nobel Prize-winning economist, and APT have in common? Fighting noise.

This past month, Harvard Business Review published an article co-authored by Nobel Prize-winning economist Daniel Kahneman entitled “Noise.” According to the article, “It is obviously useful to an organization to know about bias and noise in the decisions of its employees, but collecting that information isn’t straightforward.”

Fortunately, organizations can combat these analytical challenges with a scientific approach to decision making. The best way to remove the bias and noise that can cloud judgement is by testing new initiatives with a subset of customers, employees, or stores in market before rolling out more broadly. This is the essence of Test & Learn. By judging a program’s success based on actual customer spending and behavior, leading organizations can be confident that consumers, not executives’ instincts are driving business decisions.

For some, it may prove difficult to trust data over intuition alone. However, executives must remember that adding cause-and-effect analytics to their toolbox can dramatically increase the profitability of their actions going forward. According to Kahneman, “Ideally, the people who use these tools will view them as aids that help them do their jobs effectively and economically.”