Psychology of Intelligence Analysis Annotated: The Analyst Job

What entertains me the most is learning and the discovery journey. Sometimes you are able to assemble the puzzle, sometimes you have to live with no answers and simply deal with. And that’s why I find the topic of Intelligence Analysis so interesting. I have recently read Psychology of Intelligence Analysis by Richard Heuer, based on a compilation of declassified articles from the CIA’s Center for the Study of Intelligence, prepared for intelligence analysts and CIA directors. I intend to make a series of short posts containing what I deemed to be the most relevant from the book, categorizing topics and commenting to fit my, and hopefully our, needs.

The Analyst Job

  • “Human mind has limitation dealing with ambiguous information, multiple players and fluid circumstances”
    • This is what the real world is all about. Acknowledge it and be humble. Consider nonprobable hypotheses. Deconstruct boundaries. Fathom scenarios.
  • “We must battle against bureaucratic and ideological biases. The other guy most likely have a different cultural background, life premises and values. People built-in systems are not the same. One must understand people’s values and assumptions, and even their misperceptions and misunderstandings.”
    • Remember companies actually are a group of people working towards theoretical global goals and many individual goals. Consider each key member of it and their respective background. Motivations are crucial. Mind those are not explicit most of the time .
  • “It always involves an analytical leap, from the known to the uncertain. And still, you are not going to be certain. It’s a matter of odds a sense-making. The intelligence analysts function might be described as transcending the limits of incomplete information through the exercise of analytical judgment”
    • Some questions are simpler puzzles, others lead analysts to mysteries. Grasp not even executives know what lay down on the road for their companies. Be skeptical and proceed with caution.
  • “When dealing with a new and unfamiliar subject, the uncritical and relatively non-selective accumulation and review of information is an appropriate first step. But this is a process of absorbing information, not analyzing it. Analysis begins when the analyst consciously inserts himself into the process to select, sort and organize information.”
    • Usually it’s more interesting begin collecting non-biased information than biased ones (company filings vis a vis sell-side reports). The extensive work of number-crunching, people background checking and reading competitor-related articles are exploratory. One starts creating value when one begins to think, i.e., lays down an opinion on a summary (investment case).
  • “Major intelligence failures are usually caused by failures of analysis not collection. Relevant information is discounted, misinterpreted, ignored, rejected or overlooked because it fails to fit a prevailing mental model.”
    • We must see the whole to notice the missing parts. Additionally, we must recognize the linchpin pieces of what could be a potential investment. No doubt this is easily said than done. Experience helps a lot here. History also. Shortcuts? Read, read, read…
  • “Analysts will often find, to their surprise, that they can construct a quite plausible scenario for an event they had previously thought unlikely.”
    • This could be translated as “Hey, please take a step back and think it over.” Second-level thinking helps a lot, i.e. extensive sense-making.
  • “When one recognizes the importance of proceeding by eliminating rather than confirming hypotheses, it becomes apparent that any written argument for a certain judgment is incomplete unless it also discusses alternative judgments that were considered and why they were rejected.”
    • This trick helps a lot dealing with confirmation bias. Being extensive in your preliminary research aids to eliminate biased thesis ahead. “What if” aids tremendously when fathoming investment cases.
  • “What is difficult to find, and is most significant when found, is hard evidence that is clearly inconsistent with a reasonable hypothesis.”
    • One can never be so certain.

“The historian uses imagination to construct a coherent story out of fragments of data.” – Richard Heuer

On Knowledge, Ignorance and Misperception

Many times we, research analysts, think we have completed the puzzle. Actually we NEVER do. What we actually do is think we have completed it. At the end of the day we are just tricking ourselves. If you think twice, our job is like playing the Jigsaw game – do you remember the movie? Things are getting scary, right? So, don’t freak out and let me explain it.

Analysts are flood with information from companies, sell-side analysts and stockholders – to name a few. This is just like playing Jigsaw’s game. The game is set up, someone controls your attention. You have to figure out  by yourself, just like a CIA agent, what the actual facts are. Distraction is across the corner, but the facts are buried down there. You will have to triangulate information across different sources in order to reach somewhere. Well, “somewhere” is a place where there are a lot more questions to be answered and that’s what knowledge means: knowing what you DON’T know. In other words, knowledge is ignorance acknowledgement. And so the game goes on. It’s an infinite game. Thus when you get home at night I suggest you to upgrade Munger’s lesson “Make sure you learn something new every single day” to “Make sure you end your day with more questions than when you woke up.”

Want to dig further?

Ignorance: How it drives science by Stuart Firestein

Finite and Infinite Games by James Carse