Written by 00:00 Decision-Making, Featured, Linkinbio

How to make better decisions

Even when we are unaware we make important choices in life. While one is always wiser in hindsight, we show you how you make the best informed decisions.

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Over the weekend, I was talking with a friend – let us call him Dan – who has apparently become an expert in epidemiology. He explained to me that the risk of pandemic had been under-estimated by all experts despite clear indicators that were turning red, like for instance the unusual high number of cars parked at hospital in Wuhan at the end of 2019.

With hindsight, it is tempting to blame the experts who could not predict the Covid19 crisis despite ‘obvious indications that something was going wrong’. The same applies to the eruption of the Eyjafjallajökull in 2010, or the financial crisis in 2008 or any other major unexpected disruptive event.

One is always wiser in hindsight

We call this ‘I knew it would happen’ phenomenon the hindsight bias. It refers to the natural tendency that we all have to interpret events from the past with information from the present. For instance, I was late to book my summer holidays. Now with hindsight it is tempting for me to say that I did not book anything last winter because I thought that this corona virus would create serious disruptions to our lives.

Besides looking smart, this might distort my memories of what I actually knew or believed last winter. As I would keep repeating it around, I might even start to believe it myself. That could be a source of overconfidence regarding my ability to predict future events. After all, if I predicted that one, why would I not predict the next one?

Overconfidence in decision-making 

In these times of crisis, what are we expecting from our leaders? We expect answers and confidence in a future that – we hope – will be bright again. The same apply for doctors. What would you prefer: a doctor that is unable to diagnose exactly what you have, leaving you in uncertainty; or a doctor telling you confidently that you have that or that type of disease, although it might actually be wrong?

Wouldn’t it be great if we would have the magic crystal ball the would help us predict the future?

Confidence is one of the most highly rated leadership behavior. On the other hand, too much confidence (which we call overconfidence) can be catastrophic and drive your business down.

Give me a one-handed economist. All my economist say ‘on the on one hand…,’ but then ‘on the other hand’.

Harry Truman

Overconfidence is when you are too sure that you have it right. Therefore, you do not consider other opinions and do not accept to be questioned. In fact, you consider that you do not need to improve your understanding.

When it’s too good to be true

Let us come back to my friend Dan, the newly expert in pandemics. A couple of years ago, he had found the perfect business to invest his money in. The return on investment seemed to be sensational. The business was ran by a renowned insurance specialist. When Dan tried to persuade me to invest, I was very skeptical. First, Dan had never worked in finance before, and within a couple of months, he had become a ‘specialist’ showing me graphs on the performance of the previous years. Secondly, I had never heard about that company, nor that famous insurance specialist. And last but not least, it smelt too good to be true.

I quickly thought of a Ponzi scheme. Dan felt offended when I told him so. He did not manage to convince me. He did however talk several of his friends into investing. Why were they convinced? Because Dan was very confident, always optimistic and he is a good communicator. He kept talking about young entrepreneurs who had become rich themselves. He also referred to other acquaintances that had already invested in this business. Moreover, what was very reassuring was that if anything started to go wrong, you could withdraw your money instantly. That gave an illusion of control.

Dan did not get rich. He lost all the money he invested. Even worse, he lost many of his friends as well. The business he invested in turned out to be a pyramid scheme.

Making decisions in groups

During the last months, many of us had to work from home. I don’t know about you, but I missed the interactions with my colleagues. That probably confirms that we are a sociable species. We could even say kind of herd animals. This is also reflected in the organization of our work, where we often have to make decisions in groups, panels, committees, board, and so on… Thinking about Dan again, I noticed that he did approach each potential of his future investors individually. Why not having brought that topic to our group of friends all together? With hindsight, we could think that we would have reached a better decision together (i.e. not to invest). On the other hand, it could have had the opposite effect. With each member of the group feeling under pressure to put money into it.

Groupthink

One of the major issue with making decisions in groups is the phenomenon known as groupthink. To keep the harmony of the group, controversial issues are not raised, alternative options are not explored, decisions and statements are not challenged. It results in poor-quality of decisions and poor decision-making at all.

Decision-making in groups can have a negative impact on decision quality

Several characteristics can influence the way a group thinks. Is the leader of this group actually welcoming diverging opinion? Is the group so homogeneous that actually everyone thinks the same? Is it tolerable to challenge decisions in that particular corporate culture? I still remember in September 2001, when a couple of days after the attacks of 9/11 Georges W. Bush made that clear statement:

You are either with us or against us.”

That set the scene for the future decisions, where anyone starting to challenge decisions would be labelled as potential enemy. It is rarely expressed so clearly in business. However, I’ve noticed several times that challenging decisions is welcomed as critical thinking. However, by making it too often it can be perceived as someone not fitting into the team or even slowing down the decision-making process.

Five ways to make better decisions

To overcome or at least mitigate groupthink and overconfidence, a few good practices can help:

  1. Seek diversity in your decision-making group. By having different genders, ages and backgrounds around the table, it should generate various perceptions and allow the emergence of new ideas.
  2. To avoid falling in the overconfidence trap, conduct a pre-mortem analysis. It consists of assuming that the project or strategy you are working on failed. Then each group member is asked to prepare a list of reasons why did the project or strategy actually failed. Next everyone states a different reason until all have been recorded. It allows the participants to work afterwards on strengthening the plans to mitigate the potential reasons for failures. The advantage of that approach is that it allow a positive discussion on potential threats.
  3. Learn from experience. When required to make a decision on a specific topic, make sure that you have the right expertise around the table. It avoids people to make assumptions to fill some knowledge gaps they might have. Asking for advice – which is not the same as asking for confirmation – is a sign of humility that will allow you to build your reasoning.
  4. Another way to overcome groupthink is to assign the role of the devil’s advocate to one of the group member. Assign this role at the beginning of the meeting. This person is then expected to challenge the decisions and statements made during the session. Although it may sound a bit artificial, this is an effective way to ensure that a dissident view is considered.
  5. To avoid that a charismatic leader dominates the discussion, he/she should speak last. All other participants should have the chance to express him/herself before. It allows more reserved and quiet people to be heard. One of the key element here, is to actually listen to other people’s views, and not just waiting for your turn to talk and make your point.

As a final point, it is interesting to note that the higher the stakes, the higher the risk to be caught in a psychological trap like overconfidence or groupthink. Why? Because very important decisions usually require more people, more inputs, more estimates and assumptions. All those are making the decision-making process more complex and prone to taking shortcuts in the reasoning.

Overconfidence and groupthink are referred to as cognitive bias, which could be defined as systematic error in thinking. Scholars consider that there are more than 180 different bias. In a next articles we will talk about two other bias, using the example of the ghost airport of Berlin Brandenburg.

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