“The difference between a successful person and others is not a lack of strength, not a lack of knowledge, but rather a lack of will. – Vince Lombardi, Former Green Bay Packers coach
Vince Lombardi got it only half right. Persistence, knowledge and willpower increase the odds that one will be successful. But, if one doesn’t understand how one’s biases or preferred decision-making habits influence their thinking, smart people will eventually make bad decisions.
Most businesses are run by intelligent people. Business failures are normally traced to a smart person making an uninformed decision based on ignorance. Lombardi didn’t account for people’s biases. A bias is a one-sided way of thinking that allows smart people to discard information that’s different from their own views, and discount divergent facts that sound alarm bells. It’s a common human tendency to rely on biases because most people don’t even know they’re using them! Biases feel comfortable and speed up the decision-making process. But in an uncertain environment, when quality decisions are critical to a business’s health and success, it’s important to understand the impact of biases on decision-making and how to avoid them. A decision bias is really a thief that tricks people into thinking what’s different is actually similar. In other words, “what worked in that situation will work in this situation.”
Take Kodak. For more than a century the Eastman Kodak Company had been capturing, on chemically impregnated light sensitive photographic substrates, the most precious events of one’s life. In 1975, Steve Sasson, a Kodak engineer presented the first digital camera to Kodak’s senior managers. In spite of Kodak’s technical people loving the product, management’s reaction was “it’s not film.” Kodak’s management did investigate digital photography. The “bad” news was that digital photography was a serious threat. The “good” news was Kodak estimated they had ten years before the threat would materialize. Kodak executives chose to focus on the “good” news. That’s attention bias – the tendency to pay attention to some things while simultaneously ignoring others. Resting on their laurels, they discounted the potential threat of digital photography and looked only for points that reinforced their perceptions that past successes would continue into the future.
Over the following decade, Kodak found itself lagging. It couldn’t compete within the film market, and had no presence in the digital photography market. In 2012, Kodak sold approximately 1,100 digital imaging and processing patents to a technology consortium that included Apple, Google and Facebook in an attempt to escape bankruptcy. It later restructured and survives today as a shadow of its former self. To prevent biases from impacting decisions, today’s business leaders must be open to different points of view they may not have considered previously. Here’s a list of some biases that could result in smart people making bad decisions.
Anchoring and adjustment bias. A tendency to not budge from one’s initial bargaining stance. Example: Initial price quoted for the job sets the standard for the rest of the negotiation. Remedy: Enter the transaction with knowledge of the price range that the job can be sold for and not incur a loss.
Availability bias. People give preference to recent information that readily comes to mind. Decision-making is faster but not necessarily correct. Remedy: Seek more information. Example: Which job is more dangerous – a police officer or a logger? Statistically, loggers are more likely to die on the job than a police officer.
Confirmation bias. The tendency to selectively search for and consider information that confirms one’s beliefs. Example: An employer who believes that a job applicant is highly intelligent, may only pay attention to information that’s consistent with that belief.
Remedy: Develop objective interview questions and scorecards based on a job analysis. Use teams of interviewers.
Affect bias. People make decisions quickly by bringing their emotions into play. Research indicates that when people have a pleasant feeling about something, they see the benefits as high and the risks as low (and vice versa). It’s a first and fast response mechanism used to speed up decision-making. Example: Wherever he or she is, things go wrong. Remedy: Don’t jump to conclusions. Always investigate situations thoroughly and get complete and correct information.