Dan Heath, a senior fellow at Duke University’s Center for the Advancement of Social Entrepreneurship and co-author of “Decisive: How to Make Better Choices in Life and Work,” gave attendees at IMCA’s annual conference on Monday four reasons their decisions and their clients’ fail.
Luckily, he also gave four ways to stop making bad decisions.
He illustrated the problem with a quote from Daniel Kahneman, the psychologist and godfather of decision-making research: “A remarkable aspect of your mental life is that you are rarely stumped.” Intuition is a machine that is built to jump to conclusions, Heath said.
There are four ways that machine can break down, he continued.
First is narrow framing. Narrow framing happens when you look at a situation without considering all your options. Heath referred to a Carnegie study of teenagers that found they frame their decisions as “whether or not.” Instead of picking the best of several options, they make simple, yes-or-no decisions.
The Carnegie study found 30% of teens didn’t consider more than one option when they made a decision.
Another study by Paul Nutt, formerly a professor at the Fisher College of Business at Ohio State and an expert in decision making, examined decisions made by 168 organizations. Of those, just 29% considered more than one option.
Heath urged attendees to make “whether or not” an “alarm bell.” When they find they’re trying to decide whether or not to, say, hire an employee or consider a merger with another firm, they should stop and look at their decision more closely.
The second breakdown of intuition is confirmation bias, the tendency people have to look for information that supports their decision without considering information that would oppose it. To prevent that breakdown, advisors need to reality-test their assumptions, Heath said.
When people think they’re looking for truth, what they’re actually looking for is reassurance, Heath said. He referred to Dan Lovallo, a researcher on decision making, who said, “Confirmation bias is probably the single biggest problem in business, because even the most sophisticated people get it wrong. People go out and they’re collecting the data, and they don’t realize they’re cooking the books.”
The third breakdown is short-term emotion, the “visceral stresses” that make people react immediately to an event they should wait to respond to, like a drastic market swing.