Sunday, May 14, 2023

Sherman Kent and the problem between warner and warnee


A key part of the job of an analyst is to warn his clients about potential risks and danger. Warning also can come in the form of alerting investors about upside events.  Realize that there are two parties for any warning. There is the warner, the sender of the message, and the warnee, the receiver of the message. The form of any warning as to account for how it will be received. This problem was aptly described by Sherman Kent, the father of intelligence analysis for the CIA in his final comments. He states the problem simply, "Warning is like love - it takes two to make it."

The single central issue of warning is that it is a multi-step process which involves two parties: the Warner and the Warnee. Warning is not complete until: (1) The Warner warns (2) The Warnee hears, believes, and acts.

[There is] no warning if [the analysts’ assessment] (1) is not read; (2) is read but not believed; (3) believed but not really taken aboard.

The Warner tries to watch everything in the world and issues a warning when in his opinion the thing he sees coming up is: (1) Of considerable importance to the national security. (2) Highly likely (or likely) to take place. (3) The right time interval away - Not this afternoon. The analyst goofed—too late; Not next year—the analyst is too early. 

In examining a something [i.e., a prospective event] to tell how it meets these criteria ,you [the analysts] realize that you are judging, weighing, estimating. 

When making the next investment decision, think about the comments from Sherman Kent. There are two parties for every piece of analysis, the analyst and the investor.  What does the investor truly need to make a good decision? What is the form that the analysis should take? How can a narrative be developed that effectively communicates information on the likelihood, severity, and risk of an event. 

Perhaps being a quant saves us from this problem. Unfortunately, the forecast from analysis must be converted into a decision and that is not always easy to do.  The model provides a warning, but the PM as the warnee must use this output appropriately.

See other posts on Sherman Kent :

Sherman Kent - The analyst's analyst - Be precise with your forecasts

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