Bringing Black Box Thinking to the Pensions Industry

Pensions Institute, February 2018

28 Pages Posted: 18 Jun 2020

See all articles by David P. Blake

David P. Blake

City, University of London

Matthew Roy

affiliation not provided to SSRN

Date Written: 2018

Abstract

Based on interviews with pension scheme CEOs, senior trustees, senior policy advisers, actuaries and industry association leaders, our research applies Black Box Thinking to the UK defined benefit pensions sector and finds strong evidence that many schemes have a closed loop mindset towards failure.

Although some DB schemes follow many of the best practices outlined in Black Box Thinking, by systematically attempting to identify and evaluate mistakes, interviewees report a wide divergence in the ability of boards to learn from past mistakes – because it depends so much on a particular scheme’s good fortune in forming the right constellation of board members and advisers.

Less fortunate schemes exhibit the typical behavior of a closed loop mindset, including not setting strong measurable targets, inertia in decision making, herding behavior, shifting goal posts, failing to take ownership of mistakes and blaming others. Such schemes do not enjoy Black Box Thinking’s virtuous cycle whereby errors are reported and measured, the scheme’s culture allows introspection about mistakes, feedback loops are applied and processes to combat human biases are established – leading over time to better outcomes involving fewer errors.

JEL Classification: G22

Suggested Citation

Blake, David P. and Roy, Matthew, Bringing Black Box Thinking to the Pensions Industry (2018). Pensions Institute, February 2018, Available at SSRN: https://ssrn.com/abstract=3610048

David P. Blake (Contact Author)

City, University of London ( email )

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HOME PAGE: http://www.pensions-institute.org/

Matthew Roy

affiliation not provided to SSRN

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