The Two Patterns of Decision Making
Great business leaders are great decision makers. The ability to collect, analyze, and act on complex data is one of the key success factors for success in business. But recent research is revealing how difficult it is for human beings to objectively weigh data and act accordingly. Daniel Kahneman is a psychologist who won the Nobel Prize in Economics in 2002. His recent book, Thinking Fast and Slow, reveals a number of the thinking traps that bedevil decision-makers. For example:
We focus on one attribute of a situation and use it to answer a broad and complicated question (the “focusing illusion”).
We over-generalize from small samples.
We are terrible at intuitively understanding probabilities and often believe that the less-probable alternative is the more-probable one (the “conjunction fallacy”).
We will choose a certain small reward when a larger one is available with some risk, even when the odds are in our favor (risk aversion).
We are more unhappy about a loss than we are happy about a gain of the same amount (loss aversion).
Kahneman suggests that our thinking patterns are divided into two systems: one that makes rapid, intuitive decision based on feelings, images, and associations; and the other that uses logic and probability. We typically rely on the first system and have to force ourselves to use the second one. So what can you do to improve your decision-making skills as a business leader? First, be aware of the current research and apply it to your understanding of yourself and how you operate. Second, discipline yourself to look for your thinking trips and counteract them with your logical, analytic skills. One technique is to think about your problem as if it were someone else’s. I especially like and endorse Kahnemen’s suggestion of a “pre-mortem.” Before you finalize your decision, imagine that it is a year later and your choice turned out to be horribly wrong. Then write a history of how and why it went wrong. This creative approach will help you pinpoint fallacies in your logic and make better choices for your business.
