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How to Make the Right Decision Every Time

July 19, 2012 by
Posted in Leadership, Performance Readiness Solutions

Well, maybe not every time…but read on to learn how to increase the odds!

Few would question that decision-making quality has a huge impact on results. But did you know that unless we’re careful, we’re all prone to make decision-making errors—the kind that can cost a lot of money? Over the past half century, psychologists have catalogued many decision-warping biases with fancy names like attribution, loss aversion, availability, and saliency bias and more folksy labels like hindsight and anchoring bias, the halo effect, and self-fulfilling prophecies. The bottom line is that, as individuals, we’re hard-wired to be led astray, and even worse, research has shown that we’re largely incapable of recognizing our own biases when they occur.

If you’ve read this far, you may be itching to leave this page ASAP rather than read more bad news! Stick around—the rest of this post describes ways to counter biases and increase the odds that decisions will pay off. In a recent Harvard Business Review article, Nobel prize-winning behavioral economist Daniel Kahneman describes research showing how to significantly improve decision quality and overcome biases. The key: although we’re usually blind to our own biases, we can see them in others. But don’t expect improvement by simply relying on group decision making; that’s also perilous. Instead, you need to deliberately structure decision making to support healthy debate and dialogue—this doesn’t happen naturally.

Foster a productive exchange of views and open disagreement, but make sure the team knows how to use facts, not personal attacks or subterfuge, to work through decisions. Second, reinforce the role of challenger. Avoid punishing people when they voice constructive disagreement, and encourage people to speak up when they have different views so that the burden isn’t borne by only one team member. Most importantly, pay attention to your own behavior and strive for consistency in focusing on facts. Finally, make sure the decision-making team members have diverse views and skills.

If you’ve taken these steps, you’ve laid a good foundation for high-quality decisions. Kahneman goes on to highlight questions designed to uncover hidden biases. These include:

  • Is there any reason to suspect errors driven by self-interest? According to Kahneman, “The issue is not just intentional deception. Self-deception and rationalization are more common… Research has shown that professionals who sincerely believe that their decisions are ‘not for sale’ (such as physicians) are still biased in the direction of their own interests.”
  • Were there dissenting opinions; if so, were they explored adequately? Even if the team appears to be in agreement, it could be imposed, or groupthink could be papering over conflicts.
  • Did you actively and sincerely look for alternatives and weigh the pros and cons?
  • Do you know where the numbers come from? Often, trend-based estimates are used, and assumptions aren’t challenged.
  • Can you see a halo effect? This happens, for example, in benchmarking when we assume a company that’s really good at one thing is good at everything.
  • Finally, are the people who are making recommendations overly confident, cautious, or attached to past decisions? For example, we all can fall prey to the sunk-cost fallacy: “When considering new investments, we should disregard past expenditures that don’t affect future costs or revenues, but we don’t!”

Like most management challenges, these solutions aren’t rocket science, but they’re also not always intuitive or easy to execute. But build a strong foundation and ask the tough questions—and you’ll increase your decision-making odds—every time!

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About the Author: Having consulted in over 40 engagements across 14 industries, Dave Roitman brings to GP Strategies Performance Readines Solutions experience and expertise that is both broad and deep. Over a career spanning more than 25 years, he has worked in every aspect of organizational change, including organizational design, process, and role design; strategic and performance management; culture change; leadership alignment, coaching, and conflict resolution; and education/training. His current focus is helping IT organizations achieve business value.

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