Why yOur Decisions Suck

How to recognize classic cognitive biases in individuals and organizations before they ruin our decisions

In the world of executive decision making, great effort is made to collect data and use sophistication analytical tools. Yet somehow, a lot of our

decisions suck. How could this be?

It turns out, humans have some ill-fitting cognitive patterns due to our evolution. Every day in board rooms, Stone Age brains that developed in a tribal social setting are being used for collaborative decisions in a complex environment. Hilarity ensues, as you no doubt have witnessed first hand.

Here are a few classic cognitive failures that you should know, identify, and fix so that your decisions suck less, therefore increasing success,

profitability, and all things holy. Because man is complex and amusing, this is but a sample of those we identified.

Social Biases

The Dunning-Kruger Effect• Definition: The less the person knows about a

subject the more confident they feel about their opinions on it

• Key phrase:

"I know as much as the so-called experts. Healthcare policy is just a matter of common sense."

• Common sufferers: Accomplished people with large egos who think that their expertise carries over to all fields, mediocrities who have never developed expertise and downplay it reflexively, aspiring competitors for the Darwin Awards

• Negative effects: Easily avoidable, catastrophic mistakes

Status Quo Bias• Definition: Belief that the world is a

certain way for a reason, that it represents statistical normalcy, and is likely to remain in stasis

• Key phrase:

"We're in a recovery and everything is getting back to normal. We've seen recessions like this before in the 80s and 90s. No big deal."

• Common sufferers: Sunny optimists, people terrified by change, winners in the current system

• Negative effects: Inability to improve an organization's position because executives fail to take a situation seriously enough

Memory Biases

Good Ol' Days Bias

• Definition: Assumption that the past was easier and more positive than today

• Key phrase:

"It's so scary today. Everything is terrible compared to when I was younger. (when mortgage rates were 14%, unemployment was 8%, violence was 35% higher, and the Russians had nukes trained on us.)”

• Common sufferers: People on the cusp of retirement, people who watch too much cable news, people who suck at history

• Negative effects: Inability to identify positive opportunities for growth because focus is on why the environment is hostile

Hindsight bias• Definition: Tendency to filter past decisions

through current understanding, assuming greater wisdom and analytical skill

• Key phrase:

"Of course we knew that Dot Com One was a bubble on the verge of popping. Those stock prices made no sense. (Despite the collapse being something few people actually predicted.)”

• Common sufferers: Executives in highly political environments where admitting a mistake is considered weakness

• Negative effects: Insufficient desire to root out current cognitive failures, because old failures are rebranded as understanding

Decision Biases

Notational bias• Definition: Tendency of metrics to include more

successes (or false successes) and fewer negative experiences in metrics, therefore skewing our understanding of how effective a decision was

• Key phrase:

"We evaluated ourselves based on internal metrics, and we're doing great. Since this single, cherry-picked number looks OK, clearly our whole strategy is awesome!"

• Common sufferers: "Scientific" managers who trust numbers over intuition, unscrupulous CFOs hoping to hide major business model flaws

• Negative effects: Overconfidence in harmful decisions because "the numbers said it was the right thing to do"

Short-term benefit bias• Definition: Tendency to choose quicker,

inferior benefit without regard to probability of both outcomes

• Key phrase:

“We just don’t have the money to invest in a green building. We have limited budget and prefer to spend it on wasting electricity and water for 35 years rather than spend a little bit more up front.”

• Common sufferers: Damn near everybody except futurists and their very small number of groupies

• Negative effects: Eventual bankruptcy, slowly collapsing institutions, infrastructure built when oil was $12 a barrel, ecological collapse, general inconvenience

Semmelweis Reflex• Definition: Tendency to reject or ignore all new

data if it contradicts existing theory

• Key phrase:

"What do you mean that we surgeons need to wash our hands before operating! Dr. Semmelweis, you're a lunatic!" (True story, hence the name)

• Common sufferers: Practitioners of venerable professions with large bodies of best practice, people who just don't give a damn about preventable infections.

• Negative effects: Significant blindspots in decision making, dead patients

Want to learn more about how to make more profitable decisions? This deck is from our

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How to Avoid Mind Traps: Improve the Effectiveness of Strategic

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