A few years ago, I started thinking about all of the “mistakes” that management and organizations have made.  There are several books dealing with the subject and various companies, leaders and managers are noted for the blunders they have made in decision making.  For instance, out of the top ten mergers undertaken in the 90’s, eight of them lost money or shareholder value. Not just a little money, but billions and billions of dollars. We are all familiar with other noted disasters such as “New Coke”, Apple’s Newton and Ford’s Edsel. The question I wanted to answer was simply: “what is behind such stupid decision making?”  I found an excellent article that looked at the top ten mistakes managers make in decision making.  The title of the article was “10 reasons people make stupid decision.”  I have found this article posted on many blogs but I am unable to find the author of the article. The top ten reasons the author lists are:

  1. Attribution error
  2. Illusion of control
  3. Conformity
  4. Availability bias
  5. Endowment effect
  6. Dysfunctional competition
  7. Overconfidence
  8. Confirmation bias
  9. Egocentric bias
  10. Sunk cost bias

I won’t go into describing each of these as you can readily find the article on line. However, if you are familiar with the work of Kahneman and Tversky, many of these biases and errors will be familiar to you. These two men wrote one of the greatest books of all time. The book Judgment Under Uncertainty: Heuristics and Biases deals with the numerous errors and mistakes that humans make in decision making.  There have been other books such as The Abilene Paradox by Dr. Jerry B. Harvey, The Challenger Launch Decision by Diane Vaughan, Groupthink by Dr. Irving Janis and recently works by such authors as: Dan Ariely, Ori Brafman and Jonah Lehrer that all deal with the irrationality that goes into much decision making. However, to my thinking most of them are simply elaborating and extending the work done by Kahneman and Tversky.

It is very interesting to reflect on the fact that Dr. Herbert Simon won a Nobel Prize in Economics in 1978 for his work on the “rational” thinking that takes place in the economic sphere. In 2002, Dr. Kahneman and Dr. Tversky won a Nobel Prize for their work on the “irrational” decision making that takes place in the economic sphere. It took us another 24 years beyond Simon’s work to realize that a model of decision making based solely on the concept of rationality is flawed. Perhaps many people realized intuitively that such a model was flawed but that did not stop the experts and teachers at universities all over the world from basing economic decisions on a flawed theory. The concept of a Yin and Yang in respect to human decision making seems quite appropriate.  Humans make decisions based on both rational and irrational perspectives. It is probably safe to say that no decision ever made was made on perfectly rational criteria, unless perhaps it was preprogrammed into a computer.

The issues that can be raised by noting the manner in which managers and leaders make decisions raises three key questions. The first is whether or not irrational biases help or hinder decision making. The second is just how many different biases actually affect our decision making?  Are there more than ten and if so what are they and how can we recognize or categorize them.  The third question is how can we overcome any negative effects that our biases play on our decision making?

My partner and I came up with the concept of pathologies and pathological thinking to describe and start a sort of typology of the various irrational biases that manager’s exhibit. We began to sort these into groups and to identify various strategies that could be used to overcome the negative effect of these biases. The term pathology seemed to fit since pathology can be defined as:  “A departure or deviation from a normal condition.” We want to regard the irrational forces that adversely impact human decision making as temporary departures from normality. Granted, these “temporary” departures are frequent and systemic but they are temporary nevertheless. Most “rational” humans will want to see their biases and learn how to overcome them or at the very minimum will want to learn how to mitigate their impact.  We believe that “pathological thinking” can be treated and overcome.

Now perhaps you think we are being idealistic. How can human beings ever overcome emotions and psychological biases that are hardwired into their anatomy?  Well, in the first place, we have a positive view of the evolution of humanity. We believe that people are getting better and better and indeed want to be better and better. Second, we believe that biases while perhaps part of our basic human nature can be identified and understood. Once a bias is identified, it can be dealt with as any other “pathological condition” can be dealt with.  We can treat it, soothe the symptoms and minimize the possible negative effects. If we refuse to recognize our biases, we are helpless to avert the unintended consequences that often are the effects of irrationality and pathological thinking.  Ellen Langer wrote a wonderful book called Mindfulness. The premise of Dr. Langer’s book is that:  “The mindless following of routine and other automatic behaviors leads to much error, pain and a predetermined course of life. Only by living a mindful life will we have free rein to imagination, intuition and creativity.” 

 In my next blogs, I will attempt to address the questions raised above and to describe some examples of how biases subvert our best strategies and how we can overcome their effects.  I welcome comments and questions and hope perhaps we can make this a more interactive conversation. What has been your experience with this subject? What have you learned about overcoming biases and prejudices? How do you help your employees and managers to make better decisions?