Business managers and executives underperform by 20% because of poor decision making.
Over the past decade, I have been a leading advocate for a transformation in work. One of the most critical changes I have argued for is the rejection of business practices founded on folklore, and the adoption of new ways of work grounded on science, and in particular, cognitive science. Ignoring what we have learned in recent years about human reasoning and continuing to rely on outdated and non-scientific myths would not only be wrong, but dangerous.
What has been revealed about human cognition in recent decades is the psychological equivalent of discovering that the Sun is at the center of the solar system, not the Earth.
Prior to Copernicus, the naturalistic observation of the Sun’s rising in the east and setting in the west led to the conviction that the Sun circled the Earth, as did the other ‘heavenly bodies’. And, those who argued otherwise were considered irreligious. Galileo spent his life under house arrest, and indeed, Giordano Bruno, who extended the Copernican theory by stating the stars were distant suns that might have their own planets with distant life on them, was burned at the stake in 1600.
In our time, we are learning that how we reason is not purely rational. We are not really anything like logical engines. In fact, we are honeycombed with cognitive biases so prevalent and far-reaching it’s astonishing we’ve been able to accomplish as much as we have, as a species.
When we reflect on our reasoning, we believe, deeply, that when we make a decision we weigh various factors, considering alternatives and projecting their outcomes, and then we judiciously come to a decision. We can explain our reasoning to others, so that they can support or refute our reasoning. It all works just like the Sun rising in the east and setting in the west.
Except it is untrue. The model in our heads is not at all like what actually goes on in our heads.
There is an enormous lie underlying business, the lie that decisions are made rationally, applying logic and expertise, sifting evidence, and carefully weighing alternatives. However, the science is clear: in general, we don’t really make decisions that way: we fake it, instead.
In the white paper, I lay out an abbreviated exploration of the work of cognitive scientists who have revealed the ways our minds actually fake decision making. Not only do we fake our way through decisions, we aren’t even aware we are faking it. Our mind covers up behind itself, like the drunk who blacked out, and doesn’t remember walking home, but obviously he did because here he is, in the bathtub with his shoes on.
At the heart of the white paper is a conversation with Erik, who has investigated the nature of human decision making with the goal of helping business leaders make better decisions, which requires, first of all, admitting the big lie, and then adopting a way to untell that lie.
I asked Erik if we have reached a turning point, when business leaders are willing to stop pretending the Sun circles the Earth, and accept that decision making — in a post-Kahneman world — needs to be approached differently. He said,
We’ve learned these cognitive biases are everywhere. Generations of researchers have uncovered dozens of biases, and ways that these biases hurt us. The snowball has been rolling and growing for 40 years: it’s not like the research started yesterday. But the financial crisis caused us to pay attention to our cognitive limitations, brought it out to center stage.
I think that the next stage is answering the question ‘what are we going to do about it?’
Erik wrote an HBR article, A Checklist for Making Faster, Better Decisions, which offered a practical application of behavioral economics to everyday decision-making, and suggested that systematically following a specific process can counter a great deal of these problems. That’s a place where software can make a big difference, and applying software to the slippery problems embedded in decision making is exactly what we should be doing about it.
I recommend that you read the entire white paper, and reflect on the message at the core, based on the findings from Cloverpop’s research: Business managers and executives underperform by 20% because of poor decision making.
Perhaps quantifying it will make it clear how large an opportunity exists — or how expensive the shortfall in making bad decisions is — and that will motivate you to adopt Cloverpop’s technique to help claw back that 20% of underperformance, especially important in a time when companies have less margin for error than ever.