Cognitive Reflection and Forecasting

Thursday, November 6, 2014

For all of its sophisticated trappings, strategic forecasting can be a frustratingly inaccurate science. Any manager who’s been unpleasantly surprised by results that veer wildly from an employee’s initial projections can certainly attest to that.

According to Supply Chain and Operations Associate Professor Enno Siemsen, one reason for such errors is that individuals often disregard their high-tech software and forecasting tools in favor of their intuition. With that in mind, he, together with his co-authors Brent Moritz and Mirko Kremer, has published research that considers how cognitive reflection—the ability to tamp down initial intuitive judgments—affects forecasting.

To explore the topic, Siemsen had subjects take the Cognitive Reflection Test (CRT), a simple, three question quiz that measures how well people reflect on their intuitive judgments and avoid answering with the first response that came to mind. He augmented the CRT by having the same subjects take a standard intelligence test. “We wanted to go a step further than other studies and ask if smarter people are more cognitively reflective,” he notes. “Or is cognitive reflection a separate dimension from intelligence?”

Siemsen found a strong correlation between how well people did on the CRT and how small their forecasting errors were. At the same time, however, he also found that people with high intelligence test scores didn’t necessarily have high CRT scores. “The CRT picks up something more than general intelligence,” he notes. “In short, people who can override their intuitive responses to a question are better at forecasting.”

Siemsen’s research also revealed that individuals with high cognitive reflection don’t respond too quickly or too slowly. The latter is an indicator of overthinking, a trait that can lead to as many errors as quicksilver decision-making.

The bottom line: Individuals with high cognitive reflection—the ability to tiptoe between gut-level intuition and endless deliberation—are the people you want working on your inventory and supply chain forecasting tasks.

“Judgmental Forecasting: Cognitive Reflection and Decision Speed.” Moritz, B., Siemsen, E., et al., Production and Operations Management, (2014).