Monday, October 11, 2004

Traps in Decision-making

It is part of a managers' daily task to make decisions. Most of the decisions they make seem to be good - or at least good enough. If not most of our companies wouldn't last long before going down the drain. However. Most decisions are made in the absence of sufficient information. That is one of the reasons why the quality of a decision can only be evaluated post factum. That is, after it has been made and when the consequences are (becoming) clear.

Under circumstances in which not all information is available, the decision-maker's first decision is whether he or she has enough information to make a decision or not. The decision itself then, follows.

How then, does a person make a decision?
We found that two principles are basic to understand this process:
1. Every action and every decision eventually comes down to a human-made choice.
2. Every choice that a person makes, is always intended to make the best deal, at that moment, for that person.

These principles have some far reaching consequences.

Therefore:

· Whatever goes wrong, is caused (in the end) by people, not by circumstances, software or lack of time.

· Improving outcomes (e.g. results of an organisation) necessitates changing the way the decisions are made.

· What "the best possible deal" for a person is, depends on the knowledge as well as on the value scale used at the moment of making the decision.

We must realize that the process of making a decision is a minefield. A manager or CEO may think that a collaborator or manager will use exactly the same value scale as he would, and that the collaborator or manager will use the same body of knowledge. But usually these are nothing more than assumptions. False assumptions.

Some of the major flaws in decision-making: what can (and according to Murphy: will) go wrong?

  • Arrogance. Arrogance is the tendency to make decisions alone. Many people with power and influence (genuinely) believe their expertise or gut feeling is more reliable, plausible and credible, than the consensus of their team, advisors, critics or customers. Others are convinced that the simple fact of being the boss warrants the quality of the decisions. To some managers asking for more information or asking other people for their opinion is unnecessary and even a sign of weak leadership. Effective leaders remain open-minded, respectful and thoughtful.
  • Groupthink. This concept, identified by Irving Janis, refers to faulty decision-making in a group. When a group is highly motivated, under pressure, too excited about a topic or too enthusiastic to make a decision, groupthink is likely to occur. Groupthink does not consider all alternatives, is not critical of each other's ideas, does not examine early alternatives, does not look at the problem at hand from different angles, does not seek expert opinion and wants unanimity at the expense of quality decisions. Groupthink is especially dangerous in teams lead by a leader who suffers from 'Arrogance'.
  • Representativeness. People tend to judge the probability of an event by finding an event they consider as ‘comparable'. Then they assume that the probabilities will be similar. Usually the fallacy is in assuming that similarity in one characteristic, implies similarity in all characteristics. One example of this is what we call "the expert's fallacy". Experts may jump to conclusions, based on early recognisable aspects, just to demonstrate they are experts.
  • Availability. This is the tendency of people's judgement to align with readily available information. It is a way of finding answers by deciding, based on information the mind can retrieve. Information that is not immediately available is considered as not necessary. This heuristic can very easily lead you astray. Check here whether you use this heuristic.
  • Imaginability. This is the tendency to accept an idea or a thesis, if one can imagine it. Being able to imagine some event, makes people believe it is more likely to happen. If you can't imagine all chickens being destroyed in Europe due to bird flu, does that make supply definitely assured? If a CEO says "I can't imagine that our largest competitor will start an action plan to gain market share", does that make it impossible? Try to imagine(!) the effects in clinical practice of doctors that can't imagine AIDS occurring in their patients in a 'non-AIDS'-country. Before 9/11 it was un-imaginable in the USA, that terrorists could attack America on American ground.
  • Recency. Another decision-making flaw may be induced by the effect of recency. People tend to believe that an event that happened recently is more likely to happen again. After 9/11 safety and security regulations in airports were sharpened and applied much more severely than before - because public and politicians were convinced it could very well happen again.
  • Illusory correlations. Illusory correlations and stereotypes occur when one perceives a relationship between two events, when that relationship does not exist or to a much lesser extent than we believe. Examples are e.g. older employees - less motivated; technical skilled - male; price - quality; formal training - performance; umbrellas sold - cases of flue.

An outsider watching the flawed decision-making process, witnesses a person or a group whose judgement coalesces around a single and heavily biased point of view. What happens is that the person (or group) wants to believe something and therefore attaches too much importance to assertions that support that belief, and deny, or negate, assertions that contradict it.

The consequences of flawed decision-making can be catastrophic, and usually it is not the decision makers that are the victims.

So in order to improve the quality of decision-making in an organisation, we must ensure as much as possible that relevant knowledge is provided, accessible and available to every person in the chain from decision to execution. Second, we must ensure that every person uses the same scale of values. If this scale is not absolutely clear to everyone involved, every person is likely to make a different decision. Third, we must ensure that decision-makers gain insight in the process itself and more specifically make them aware of the dangers that threaten sound decision-making.




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posted by es @ 19:44

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