The Fox and the Hedgehog

Sep 14 2010

“The fox knows many things, but the hedgehog only knows one big thing.”  - Archilochus (7th Century BC)

Are you a fox or a hedgehog?

In a famous essay “The Hedgehog and the Fox”, Isaiah Berlin wrote about the characteristics of the fox and the hedgehog, inspired by the quote from Archilochus (and not to be confused with Aesop’s tale of the fox and hedgehog, which is very different).  The metaphor has been taken up by many subsequent writers.

In ‘All research is problem solving‘, I talked about the differences between management consultants and market researchers and in some respects the differences I described reflect the fox versus hedgehog paradigm: management consultants often have a very strong opinion and see all problems through that mirror, while market researchers, understanding the provisional nature of their knowledge, draw back from stating a clear view and seek to qualify their views in presentations.

Are experts better forecasters?

Most of those working in the financial markets are hedgehogs.  They know one thing very well, be it hedge funds, foreign exchange, or the mathematical formulae for financial derivatives.  And they are all spectacularly bad at forecasting events outside their domain.

Interestingly, all of those who predicted the financial crisis work outside the financial services industry or have a very broad understanding and experience across different aspects of financial services, macroeconomics and politics.  Those who worked within specific domains of economics and financial services were not able to predict what would happen and failed to see the errors in the assumptions of their models (ie that house prices could only go up).

This is not a new phenomenon and has been studied scientifically.  Philip Tetlock has now spent over 20 years looking at political predictions, and has written a fascinating review of his findings in Expert Political Judgement.  He found no differences in the ability of liberals, conservatives, pessimists and optimists to predict the future.  However he found huge differences in accuracy of predictions based on the styles of judgement and thinking: between what he describes as ‘hedgehogs’ and ‘foxes’.  He sees hedgehogs as knowing one big thing - what you might call an expert - with a strong and clear world view.  By contrast, foxes know many things and are generally sceptical about grand theories and generally more pragmatic about the world. Hedgehogs are generally much more allied to a particular political philosophy whereas foxes are much more open-minded and willing to look at evidence and ideas across different domains to reach a particular point of view.

Who has better insights?

And the clear conclusion is that foxes win.  They generally make better predictions, both short-term and long-term, and also have a more accurate view of the likelihood of their predictions.  More importantly, they make better predictions across all domains: both where they have expertise and where they do not.  The only area where hedgehogs do better is in some of the more “extreme” or far out predictions.  For instance, there are a few maverick economists who did foresee the events of the last two years, but they are definitely in the minority.  Tetlock’s conclusions are robust, and based on 28,000+ predictions from almost 300 political commentators.

“Grand unified theories” are often bad for our common sense, blinding us to evidence which contradicts are most cherished ideals.  Interestingly, Jim Collins also uses the fox and hedgehog parable in his book Good to Great (which I should declare I do not rate).  He argues that hedgehogs are more successful in business, by focusing on what they are passionate about, what they are good at, and what can make them money.  I agree that passion and expertise are important to success, but I think Collins is too liable to confirmation and survivor biases in focusing his attention on 11 companies which he believes are “great” (he might revise his opinion 9 years later of course).  How many failed businesses show the same characteristics as Collins’ 11 stars?

It’s good to be a fox

People who build successful businesses from scratch often understand their business area very well, are focused and pursue their dreams in the face of adversity.  They also understand the broader context of their business and are sensitive to changes in the business, cultural and political environment, and adjust accordingly.

Looking at the world pragmatically, using different perspectives enhance your understanding, helps you make better judgements.  This is a key skill for market researchers (and innovators), as the most penetrating insights come from seeing a problem from multiple points of view, and managing to reconcile them so that they can be understood through a single framework.  Strong opinions do not help in this respect, if they close us to these different perspectives and narrow our vision.

There’s a difference between thinking and action

My conclusion is that market researchers need to think like foxes.  They should keep honest score of different perspectives, create and test hypotheses to confirm or falsify their views, and enjoy being proved wrong as much as they enjoy being proved right.  Whether right or wrong they must learn from the answers that research provides.  However, to create business impact they must act like hedgehogs having thought through the research findings.

To make the best decisions, businesses need to think like foxes and act like hedgehogs.  In order to persuade businesses, market researchers should do the same.

REFERENCES

‘The Hedgehog and the Fox’ in Russian Thinkers by Isaiah Berlin (1978)

Good to Great by Jim Collins (2001)

Expert Political Judgement: How Good Is It?  How Can We Know? by Philip Tetlock

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