Milo and I organize a workshop on Tuesday, May 29 on ACH (Analysis of Competing Hypotheses). ACH is a tool originally developed by Richards Heuer at the CIA to analyze complex and uncertain situations. It is widely used in intelligence and international politics, but Milo and I think it applies equally well to business for strategic decision making. ACH uses a deceptively simple framework to use ideas from the scientific method, cognitive psychology and decision analysis to overcome a common but immensely important bias: the fact that we tend to perceive what we expect to perceive rather than what actually exists.
As I explain to my students at IE, the most any business school can hope to do is move you from unconscious ignorance to conscious ignorance of a subject. In other words, a course can lay a firm foundation in a subject, and then provide a jumping off point for future self-study. After my MIAF course “Geopolitics and Investing”, that usually prompts the question, “Where should I begin such self-study?” How do I start to learn to generate “geopolitical alpha”?
As I said in an earlier post, there are certain key books that point you towards how to think like an intelligence analyst. Because the skills of an intelligence analyst and a geopolitical investor overlap so much, I would also say that investors interested in geopolitics start with those key books. In particular, if you haven’t mastered the critical thinking and the basic analytic techniques described in Thinking in Time, Essence of Decision and The Thinker’s Toolkit, you are still in kindergarten as far as intelligence analysis is concerned. Heuer’s Psychology of Intelligence Analysis (downloadable free from the CIA’s site here) is also immensely valuable. None of these books will teach you geopolitical analysis per se, but they will give you a solid foundation in non-quantitative analysis.
One investor gets a grip on Geopolitics
Posted in Methodology & Tools, Theory
Tagged analysis, asset allocation, CIA, demography, economics, energy, event trading, forecasting, geopolitical alpha, Geopolitics, Geostrategy, Graham T. Allison, Hedge funds, Intelligence Analysis, investing, Luttwak, Richard Neustadt, strategic autism, Use of history
In business and finance, statistics and quantitative comparisons are daily companions. Sometimes, however, key statistics can become too familiar, and reify, i.e. harden into “facts” that everybody knows. In so doing, they play a large part in strategic surprises.
In the late 1980s, for example, the US Intelligence Community “knew” that Soviet GDP was $2.5 trillion, i.e. about 52 percent of the US GDP of $4.8 trillion. How? Their computer models told them so. These models relied upon – among other things – assumptions about ruble-dollar Purchasing Power Parity (PPP).
Western academic Sovietologists also “knew” the USSR’s economy was about $2.5 trillion. How? Mostly, they relied on an authoritative source: the CIA.
Posted in Methodology & Tools, Theory
Tagged BRICs, Cassandras, China, CIA, Emerging markets, Geopolitics, Igor Birman, Intelligence Analysis, PPP, statistics, urbanization, USSR
To follow up on Philippe’s post about Thinking in Time: at IE I teach a course called “Geopolitics” to Masters in Advanced Finance students, and “The Multinational Firm and Geostrategy” to Masters in Management students. Students in those classes sometimes ask me to recommend books to help them “think like an intelligence analyst” and apply intelligence methods to analyzing business decisions.
I provide extensive bibliographies as part of my course syllabi, but often students want me to boil my recommendations down to a few key texts. Call it a “getting started in intelligence for businesspeople” reading list.
Posted in Methodology & Tools
Tagged CIA, Cuban Missile Crisis, Ernest R May, Geopolitics, Geostrategy, Graham T. Allison, Hedge funds, Integrated Strategy, intelligence, Intelligence Analysis, Morgan D. Jones, non-predictive strategy, Philip D. Zelikow, Richard E Neustadt, strategy, Timothy Walton