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Why Smart People Make Stupid Decisions

*As originally seen on Forbes.com

We’ve all been there.

We make what we think is a rational decision. And then seconds, minutes or days later we wonder “What was I thinking?!” Was it a temporary lapse of sanity? Were we just distracted and decided anyway?

We knew it wasn’t the right decision or the best decision, but in that moment, we made a decision anyway. And it ended up being a stupid one. Why?

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The Science Behind “Stupid”

Does this mean that we are indeed stupid? Nope. It simply means that not every decision we make is actually rational. We see what we want to see filtered through our inherent biases, and then we make decisions based on those biases. These biases are called cognitive biases and we all have them.

cognitive bias refers to the systematic pattern of deviation from norm or rationality in judgment. These biases cause conclusions, inferences, assumptions about people and situations to be drawn in a less than logical fashion. We all create our own “subjective social reality” from our perception of the input we receive — both from outside of us and inside of us.

How can we stop making stupid decisions and start making smart ones? By spending time understanding our cognitive biases.

When we understand, we make better decisions.

Check out this graphic, then in a few minutes I’ll walk you through how I used it to help a client make a smart hire instead of a stupid one.

What’s Your Bias? Or How Bias Impacts Business

Neil Jacobstein, an expert in artificial intelligence, notes that we all use AI and algorithms to mitigate and compensate for many of the following heuristics in human cognition (thinking):

Anchoring bias: Tendency to rely too heavily, or “anchor,” on one trait or piece of information when making decisions.

Availability bias: Tendency to overestimate the likelihood of events with greater “availability” in memory, which can be over-optimistic, overestimating favorable and pleasing outcomes.

Bandwagon effect: Tendency to do (or believe) things because many people do (or believe) the same. Related to groupthink and herd behavior.

Hindsight bias: Sometimes called the “I knew it all along” effect, the tendency to see past events as being predictable at the time those events happened.

Normalcy bias: Refusal to plan for, or react to, a disaster which has never happened before.

Optimism bias: Tendency to be over-optimistic, overestimating favorable and pleasing outcomes. 

Planning fallacy bias: Tendency to overestimate benefits and underestimate costs and task-completion times.

Sunk-cost or loss-aversion bias: Disutility of giving up an object is greater than the utility associated with acquiring it.

Click here for a complete list of all cognitive biases.

Jacobstein is fond of pointing out that your neocortex has not had a major upgrade in 50,000 years. It is the size, shape and thickness of a dinner napkin. “What if,” he asks, “it was the size of a table cloth? Or California?”

The Benefits Of Bias—And How To Optimize Yours

Biases can be helpful. They filter through information overwhelm, they help make sense of the world, they allow us to make quick decisions in a fast paced world. Check out this recent challenge an executive coaching client of mine had.

My client needed to hire a VP marketing to take the company to the next level. He had four candidates that had made it to the interview stage and one had even made it onsite to meet with four different key stakeholders in the organization. I asked him why he favored this one candidate by such a long shot. As I listened I heard the following biases. He was showing:

• Planning fallacy bias: Underestimating how long the process would take and what a great hire would cost.

• Anchoring bias: Focusing on one piece of information (the candidate’s current job accomplishments but not his entire career—his resume had  two decades of one to two year roles).

• Availability bias: Because the candidate was successful (in a huge company with tons of resources available) he assumed he’d be successful in a much smaller company (with about 1/6 of the resources the candidate was accustomed to).

• Optimism bias: Some of this too…thinking we’d have a solid candidate identified, screened, hired within six weeks.

I expressed these concerns, and how cognitive biases can be busted when you:

• Take Your Time: You will make better decisions when you aren’t hungry, tired or stressed. Taking time before making a decision allows you to have think about the future and the impact of your decision.

• Get An Outside View: Ask a trusted advisor or peer for their opinion.

• Consider Options: What else could you do?

Then he asked me to interview the candidate. I deeply questioned the candidate in each of the bias areas our client had. The result? They’re not the right fit for the company. Not by a long shot. The excellent news is our client avoided a costly hiring mistake and the super excellent news is that he still has three candidates that might fit the bill once they are interviewed by carefully avoiding cognitive bias.

While we’ll all still make stupid decisions now and then (welcome to being human!), once you understand cognitive biases you’ll mitigate risk by implementing the tools above.

4 Steps to Fast, Effective Meetings

Image Credit: mmiweb.org.uk

How is your company’s communication?

Is it tight and efficient and aimed at driving results or increasing connection?

Or do team members talk a lot without saying anything meaningful?

Of the hundreds of companies I’ve worked with over the past 30 years, I repeatedly see only five types of communication…

  1. Info Sharing
  2. Sharing Oneself
  3. Debating, Decision Making, Point Proving
  4. Promises
  5. Requests

… and only two of them drive results.

What communication types are most prevalent in your culture?

Look at the chart above. Are your meetings dominated by lots of Info Sharing, lots of Sharing of Oneself, some Debating, Decision Making and Point Proving and regrettably few Requests and Promises?

You’re not alone.

We have meetings because we want to reach a conclusion of some sort. To make meetings matter you’ll want to:

1. Set the meeting’s intention in advance: what exactly do you want to accomplish?

If it’s simply to share info that is not highly sensitive (e.g. you’re fired), then send an email instead. If it’s to get everyone aligned and to allocate work, then set a tight agenda and wrap the meeting within 45 minutes (or take a break then, as people are maxing out in their attention span). The key is allow only enough Info Sharing to solicit Requests from parties who need something and Promises from those who will deliver.  If it’s a company meeting/update session for the team, keep it short with segments for summary result info, current obstacles and plans to overcome them, future goals, a short education session and celebration of people/recent accomplishments.

Is the meeting’s purpose to share your thoughts/feelings? Have a one-on-one huddle for 10-15 minutes instead.

Is it to debate or point prove? How necessary is that?

2. Invite the doers, decision makers, impacted parties only.

Often meetings are too crowded because too many unnecessary people are invited. The point of the meeting is to get stuff done as a group. Get the people in the room who will facilitate that or be affected by it.

3. Have a clear meeting leader and tight time-lined agenda.

The meeting leader’s task is to keep everyone on track and drive to results. Once each key point of the meeting is mapped out, keep the focus on achieving your intention. Other topics and side conversations will be handled off line later with the appropriate parties present. Also the goal isn’t to solve detailed problems in the meeting, it’s to assign responsibilities based on Requests and Promises made. The responsible individuals will follow through post-meeting.

4. Send a recap email of all responsibilities post-meeting.

The meeting leader will summarize the Requests, Promises and details of each. Remember a vague Request (can you get me info on our top advertisers?) versus a clear Request (can you get me a report of our top 50 advertisers in the USA with spending history for the current + past 5 years in a spreadsheet by 4pm this Friday?) will help the Promise maker to succeed. The meeting leader’s job is to ensure all participants are set up to succeed in executing their Promises.

The result of the above is meetings that are efficient, effective, and keep your team happy and executing with high accountability. Further, it’ll reduce B.S., frustration, and disengaged team members.

Do what our clients do: enlarge the graphic above, post it on your conference room wall and train your team to communicate to drive results.

How is communication within your company? Every CEO needs a sounding board. I’ll select 3 readers for a communication strategy call. Click here to throw your hat in the ring.