mental biases impact decisions regarding strategic direction
Psychologists have identified dozens of mental biases that unconsciously influence human decisions – so in particular decisions concerning strategic direction.
Psychologists and behavioral economists have identified dozens of mental biases that unconsciously influence human behavior.
Giving a few examples may create awareness. The chosen examples show that there are no rational decisions.
The selected groupings make clear, one of the insidious things about mental biases is their close relationship with „gut feelings“ and mind-sets that often serve seasoned and experienced decision makers well, e.g. pattern-recognition skills which have been cultivated over the years.
Similarly, seeking consensus when making a decision is often not a failing but a condition of success. And valuing stability rather than “rocking
the boat” or “fixing what ain’t broke” is a common management precept – right or wrong.
Let us look at some significant examples.
Action oriented biases drive us to take action less thoughtfully than we should, e.g. excessive optimism, overconfidence or competitor neglect.
Interest biases arise in the presence of conflicting incentives, including non monetary and even purely emotional ones, e.g. misaligned individual incentives, inappropriate attachments or misaligned corporate goals.
Pattern recognition biases lead us to recognise patterns even where there are no ones, e.g. confirmation bias, champion bias or false analogies.
Stability biases create a tendency towards inertia in the presence of uncertainty, e.g. loss aversion, sunk-cost fallacy or status quo bias.
There are several more. The challenge is, that decision makers are not aware about mental biases. Therefore it is of utmost importance that „neutral“ advisors are guiding decision malking and strategy development!
Avoid a Strategy Process with flaws
Today in business, the “advocacy-strategy” process for deciding on the way forward is quite common. Particular in larger, consensus driven organisations strategy is most frequently decided by groups rather than individuals.
Often this scenario looks as follows: A „champion“ – opinion leader – presents a proposal. The decision-making body tries hard to find holes and correct assumptions. If the presenter can convince the group, he wins! If not, it’s back to the drawing board.
This kind of strategy process is badly flawed.
- It leads to a competition among people – rather than among alternatives
- Meaningful alternatives are often rejected too soon in favor of the champion’s preferred choice
- It amplifies common biases such as selective attention and confirming evidence
- It leads to a compromise (very very bad), a “satisficing” decision instead of finding the best option for the future direction of the business.
To come to the right decision the collaborative approach has to be limited to the search of high-value opportunities – NOT for taking the decision. Ultimately, the best future option will never evolve out of a compromise.