One way or the other, we all get paid to make good business decisions. Those who make more good decisions than bad ones likely will have longer, more successful, and happier careers.
There are plenty of reasons bad decisions get made. Often, decisions that look good at the time made, turn out to be terrible decisions. Changes in markets, tastes, and technology trip us up. Or, we just can’t obtain all the information needed for a good decision.
Other decisions are bad ones at the moment they are made. These bad decisions are most often caused by cognitive traps. A good defense is to know and avoid the five biggest business decision traps lurking to sabotage your thinking. You may avoid some obvious bad choices, and importantly, be able to help co-workers, subordinates, and even bosses avoid them too.
Avoid decision fatigue: One famous study demonstrated that judges were more likely to grant prisoners parole in the early morning and early afternoon, after lunch, than they were in late morning or late afternoon. But you don’t need a study to know for yourself that during the course of the day there are times you feel better rested and well fed, and other times you are tired and hungry.
Be alert to your body’s rhythms. If possible, defer decision making when your blood sugar is low. Be aware that there is something known as cognitive fatigue. Long periods of serious thinking or intense concentration does impair decision making. Don’t make important decisions after long periods of hard mental work.
Don’t ignore your gut: Researchers have proven that decision making has both a rational cognitive component, and an emotional one. Both are necessary in all decision making, but in the proper proportions. There are times we are fooled into thinking a decision should be made only on the facts and figures. But a little voice in the back of our mind is telling us something different. That’s the emotional side of decision making trying to get a word in. Pay heed to it. Sometimes the numbers get it wrong, and your gut gets it right.
Steer clear of conflicted self-interest: Self-interest is a powerful force, and a reason mankind has survived and thrived. But there are times self-interest corrupts decision making, and we are not even aware of it. A cardinal rule: When we have a personal stake in the outcome of a decision, we are wired to make decisions that favor our interests. This can be a big danger, especially if stakeholders in our decision making are parties to whom we owe a fiduciary duty.
Don’t get weighed down by anchors: Good salespeople and negotiators all understand the power of anchors. The human mind tends to attach disproportionately great significance to the first piece of information it processes in decision making, even if the information is obviously irrelevant or unverified.
Study participants shown a low number, such as the number 10, before being asked to make a numerical estimate of something, say the price of a certain automobile, will always estimate a lower number than study participants shown a high number. Of course those numbers have no relevance to the price of the car, but the mind is influenced in its judgment by merely seeing the numbers.
Don’t get framed: When shopping at the grocery store, have you ever purchased a product advertised as 10% fat? The answer is no. But you don’t think twice about buying the same product if it is advertised as 90% fat free. Of course both products contain the same amount of fat, but the framing of the facts dramatically influences your decision making.
In a business context, how decisions are framed is critically important. Research has shown that years ago executives at Ford deciding whether to recall Pintos with potentially defective gas tanks were presented with the problem as a cost accounting issue, rather than as an ethical or reputation management issue. This framing influenced the outcome of the decision making. Likely, Toyota and GM executives have more recently fallen into the same trap.
This is only the tip of the iceberg on decision making traps. To learn more, here is a short reading list: Think Again, by Sydney Finkelstein, Jo Whitehead, and Andrew Campbell; How We Decide by Jonah Lehrer; Predictably Irrational by Dan Ariley; Blind Spots by Max Bazerman and Ann Tenbrunsel, and Thinking, Fast and Slow by Daniel Kahneman.