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InfoQ Homepage News What can Math and Psychology teach us about Agile?

What can Math and Psychology teach us about Agile?

Whether people realise it or not, "freedom to choose" is an underlying principle behind many of the agile practices. Chris Matts and Olav Maassen call this principle Real Options, and are working out an explanation of how Agile provides benefits to business by leveraging the freedom to choose later, rather than sooner. This InfoQ article introduces their approach, which applies both psychology and complex financial mathematics to back up what Lean simply calls "deferring decisions to the last responsible moment." Real options provides theoretical underpinnings for what we've been practicing as common sense for years now.

Here are some examples, cited by the authors, of how Agile applies Real Options:
  • Behaviour Driven Development and Test Driven Development provide many options, especially the option to change the software, knowing when you have broken it.
  • Test driven development requires no decision at all, simply stop coding when all the tests are green.
  • XP and Scrum defer the decision about which story to develop until just before the coding starts. By delaying commitment on the features built, the team is able to reduce time-to-market for new features requested. And, when the client requests a feature the team is free to act, because they are not tied up working on unwanted features

Matts and Maassen jokingly call Real Options "the illegitimate child of hard core financial risk management mathematics and the pragmatic psychology of neuro-linguistic programming:"

Real Options is an approach that allows people to make optimal decisions within their current context. This may sound difficult, but in essence it is a different view on how we deal with making decisions. There are two aspects to Real Options, the mathematics and the psychology. The mathematics of Real Options, which is based on Financial Option Theory, provide us an optimal decision process. The psychology of uncertainty and decision making (based on Neuro Linguistic Programming and Cognitive Behavioural theory) tells us why people do not follow this optimal decision process and make irrational decisions as a result.

The authors propose that an understanding of Real Options will allow us to develop and refine new agile practices and take agile in directions it hasn't gone before - as well as helping us understand why people resist some of the practices.

Read the InfoQ article: "Real Options" Underlie Agile Practices.

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