Category Archives: Decision Making

Twelve Questions Executives Can Ask To Improve Decision Making

I first became interested in decision making more than a decade ago, back when I was running marketing at Business Objects.  My interest was prompted by the evolution of taglines among BI vendors.  In the early days, taglines were descriptive like First in Enterprise Decision Support or The Enterprise Data Mart Company.

Over time, pressure mounted on marketing to pitch benefits — the message shouldn’t just be about getting people information, but the benefit of having it.  Slogans evolved accordingly:  Now You Know, The Power To Know, and Business Intelligence:  If You Have It, You Know.

But was knowing enough of a benefit?  You could certainly take it up a level, and Cognos did:  Better Decisions Every Day.  For a marketing slogan it was good enough, but was it true?   Did providing better access to corporate information  invariably improve decision making?  It seemed like a leap so I decided to research it.

I’ll never forget when Cornell professor Jay Russo told me, “the primary use of new information is selective filtering to justify previously established conclusions.”  So, despite the commonsense appeal of the Cognos tagline, you most certainly could not draw a straight line from “more information” to “better decisions.”

I studied how individuals and groups  made decisions.  I read interesting books like Russo’s Decision Traps (later positively reframed into Winning Decisions) and Smart Choices.  Years later I became interested in mass decision making  in The Wisdom of Crowds and behavioral economics in Predictably Irrational and Why Smart People Make Big Money Mistakes.

I remember asking Russo why decision making wasn’t more of a focus in business schools.  His answer came down to two things:

  • If you can’t measure it, you can’t manage it.  Until corporations want to start measuring decision making, you can’t focus on improving it.  (I remember once suggesting a BI product that tracked votes on strategic decisions, evaluated their success years later, and calculated batting averages for team members.  The idea was shot down as my colleagues imagined executives fleeing like cockroaches under an illuminated light.)
  • Executives perceive their jobs as decision-making and themselves as experts.  Think:  Why would I need a class in decision making?  I make decisions for a living and my success in rising up this organization is proof that I am good at it.

But if quenching thirst is the ultimate benefit of Coke, improved decision making really is the ultimate benefit sought by BI consumers.  The problem was  — and is — that BI software can’t deliver it.

So if you want to improve your decision making, then you’re going to have to read up a bit, either through the books I’ve referenced above or via a recent article in Harvard Business Review entitled Before You Make That Big Decision, which provides 12 questions that senior executives can ask about decisions and decision-making processes to avoid the most common errors.

Here are those 12 questions and the biases that they are trying to detect:

  1. Is there any reason to suspect motivated errors, or errors driven by the self-interest of the recommending team?  (self-interest bias)
  2. Have the people making the recommendation fallen in love with it?  (affect heuristic)
  3. Were there dissenting opinions within the recommending team?  (groupthink)
  4. Could the diagnosis of the situation be overly influenced by salient analogies?  (saliency bias)
  5. Have credible alternatives been considered?  (confirmation bias)
  6. If you had to make this decision again in a year, what information would you want and can you get more of it now?  (availability bias)
  7. Do you know where the numbers came from?  (anchoring bias)
  8. Can you see a halo effect? (halo effect)
  9. Are the people making the recommendation overly attached to past decisions?  (sunk-cost fallacy, endowment effect)
  10. Is the base case overly optimistic?  (overconfidence)
  11. Is the worst case bad enough?  (disaster neglect)
  12. Is the recommending team overly cautious?  (loss aversion)
The full article is here.

The Blissful Ignorance Effect

I’ve always been a fan of studying how we, as people, make decisions whether they’re big ones (e.g., Smart Choices, Decision Traps) or day-to-day consumer ones (e.g., Why We Buy). On the latter, I’d always felt that the Internet was a marketer’s boon because Why We Buy shows the pains that merchandisers must endure in the physical world (using cameras and observers) that get replaced by a nice friendly clickstream in the virtual one. For example, market basket analysis can tell you what customers purchased in a supermarket and in which combinations; but only human observation can tell you each product they considered, which they looked at, which they picked up, why they tried to bend over to reach but stopped, and which they read the label on and then hastily put back.

All this is a long way of introducing an interesting article in today’s New York Times, entitled Some Blissful Ignorance Can Cure Chronic Buyer’s Remorse. The conclusion, named “The Blissful Ignorance Effect,” is that people who have more ambiguous information about a product expect to be happier with their purchases than those who have bought with more specific details.

Excerpts:

… there is a shift in buyers’ goals before and after purchasing something. Professor Nayakankuppam says these are called “accuracy goals” versus “directional goals.”

Before the purchase, “people want clear, objective information — they want to make sure they get it right,” he said. “After a purchase, they want to reach a particular decision — they have a directional goal.”

[…]

Elliot Aronson, … co-author most recently of “Mistakes Were Made (but Not by Me)” [dk: great title!] … is not surprised by these findings. He has spent a lifetime looking at how people justify their decisions. “If you have just a little information and then you’re a little disappointed, you can convince yourself that it wasn’t your fault, or that the item may be better than you thought for other reasons,” he said.

In general, he says, people are “cognitive misers” — they do not want to do a lot of thinking and research. That is one reason that brands and slogans are attractive; they are a shortcut to information.

[…]

Max Kalehoff, vice president for marketing for Clickable, […] says “A product that really requires a lot of detail or work to understand creates implicit barriers,” he said. “Marketers are throwing things at us with increasing complexity. It would be stupid to assume they should hide information from consumers, but they need to focus — from a product or service standpoint — on prioritizing the most important information and presenting it with the greatest efficiency.”

The article ends with some advice:

Research big decisions thoroughly, but don’t worry so much about the small ones. Don’t overanalyze why you like things — and in the end, you can probably convince yourself that whatever you have done is the right thing.

Forget BI: Go With Your Gut

Newsweek recently published an article that should be sending shock waves through the business intelligence (BI) market, populated with vendors like Business Objects, Cognos, and MicroStrategy.

BI tools help business people get access to information in corporate databases and data warehouses, so they can make better business decisions. In fact, if you looked at the tag lines for these vendors over the years, they consistently played off the theme of knowing more and therefore making better decisions:

  • Better decisions every day
  • Now you now
  • The power to know
  • Business intelligence: if you have it you know
  • [Mumble, mumble] something about insight [with lots of black] (poking fun at BOBJ’s “margeketing”)

My interest in this implicit premise led me to research how people made decisions, enjoying books like Decision Traps by J. Edward Russo, its newer sequel Winning Decisions, and Smart Choices by John Hammond. After all, in the BI world, if we were in the business of providing better information for making better decisions, maybe we should learn something — and perhaps try to help improve — the next step down the line.

But what if the premise were flawed? What if more information didn’t help improve decision quality? I remember asking J. Edward Russo (who is both a psychology and business professor) what people would most likely do with increased access to information? His answer: selectively filter the information to justify already made decisions. Hum.

In the end I concluded two things:

  • Selling “better decisions” wouldn’t work because most people — particularly executives — don’t think they have a problem. “I’m a great decision maker; look how far I’ve gotten in my career.”
  • If that weren’t enough, given my reading, I felt that the first thing companies could do to improve organizational decision making would be to systematically record votes on major decisions and periodically review the decisions and who voted which way. When I proposed we do precisely that at Business Objects, executives scattered faster than cockroaches with the lights turned on.

Clearly, while there was a big market for “more information,” demand for “better decisions” seemed lacking.

So what does Newsweek have to say? Almost in the Blink school of thought, there’s a new book out called Gut Feelings that argues our subconscious can do a pretty good job filtering and processing information.

Excerpts:

Hunches, gut feelings, intuition—these are all colloquial English for what Gigerenzer and his colleagues call “heuristics,” fast and efficient cognitive shortcuts that (according to the emerging theory) can help us negotiate life, if we let them.

[…]

Gigerenzer calls such decision making “satisficing,” as in “satisfying” enough to “suffice.” Satisficers don’t feel the need to know everything, in contrast to “maximizers,” who do want to weigh every detail imaginable in making even minor life decisions. Interestingly, studies have found that satisficers are more optimistic about life, have higher self-esteem, and are generally happier than maximizers.

The whole story reminds me a humorous moment in my marketing career. We were running the BI Summit, a top-end executive event in the UK. We had Michael Heseltine, a member of parliament, secretary, prominent UK politician and businessman as our keynote speaker. We were donig Q&A in an interview format and the interviewer — on ear-bud prompt by our UK marketing director — kept asking increasingly leading questions about the power of information in making decisions.

And then he pressed once too far. It was many years ago, but as I recall it went something like this:

Interviewer [building in hyperbole]: Well, then, would you say that some of the best decisions you ever made in your life were based on data and analysis?

Heseltine: Well, in fact, no. No, I wouldn’t. I remember when we decided to start [magazine X] just having a flash of intuitive brilliance in looking at a newsstand and realizing there was no publication in the [X] space. In fact, well, I think I’d say that some of the best decisions I’ve ever made have been based on pure instinct and intuition. No data at all, really.

There’s a lesson on decision-making in there. And one on over-reaching as well.