You're About to Make a Terrible Mistake: How Biases Distort Decision-Making and What You Can Do to Fight Them by Olivier Sibony
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BINOD’S RATING: 7.5/10Strategy professor and management consultant Olivier Sibony draws on dozens of engaging case studies to show how cognitive biases routinely lead all of us into nine common decision-making traps.
But this book is different because instead of just serving up the same old “biases” that contaminate decision making, Sibony says the best way to avoid the screwups of cognitive bias is to design a “decision making architecture” that uses everyone’s smarts to make the best decisions. He also provides 40 practical ways for doing so.
Key points
Errors in strategic decision-making are not exceptional at all. In a survey of two thousand executives, only 28 % said their company “generally” makes good strategic decisions. The majority (60 %) felt bad decisions were just as frequent as good ones.
Examples of screwed up decisions range from overpaid acquisitions to disastrous turnaround strategies (e.g., Ron Johnson and J C Penney) to over optimistic capex budgets to allowing competitors to disrupt you with new technologies (e.g Blockbuster and Netflix) to not learning to cut your losses (and to stop investing in a failing venture).
Something that’s fascinating. When companies make strategic decisions that turned out great, it was often because they broke the rules and acted unconventionally. But when they flopped, they rarely did so in a new, creative way. Instead, they made precisely the same poor decisions that others had made before them. It was just the reverse of Tolstoy’s famous observation about families in Anna Karenina: every successful strategy is successful in its own way. But all strategic failures are alike!
To this puzzle, behavioral science suggests some solutions. Because humans do not conform to the economists’ model of rational decision-making, they goof up. And not just any mistakes: systematic, non-random, predictable mistakes. These errors are what we call biases.
However, many business leaders now realize that they should do something about biases in their own strategic decisions. But do what, exactly? Answering that question is the focus of this book.
The book can be summarized in 3 core ideas:
Our biases lead us astray, but not in random directions. There is method to our madness. We may be irrational, but we are predictably irrational.
The way to deal with our biases is not to try to overcome them. You will generally not be able to overcome your own biases. But organizations can make up for our shortcomings. This requires two key ingredients: collaboration and process. Collaboration because many people are more likely to detect biases than a lonely decision maker is. Good process because you need to act on their insights.
While organizations can overcome individual biases, this does not just happen by chance. Left to themselves, organizations do little to limit individual biases. A good leader, therefore, views himself as a decision architect in charge of designing his organization’s decision-making processes. This is illustrated with forty practical techniques.
Can you trust your intuition? Depends. Sibony contrasts the difference between intuitive decision-making and strategic decision-making. He highlights how firefighters, nurses and others can make the correct intuitive judgment more often than not because they have "prolonged practice with clear feedback in a high-validity environment." Hence, they can trust their intuition. But most strategic decisions are taken in unique contexts and hence intuition rarely works and if it does work it’s due to luck rather than skill.
Two anecdotes that struck me:
Warren Buffett who was a board member and was against an executive compensation package but still didn't vote no because he didn't want to "break the harmony of the group". Which demonstrates how difficult it is to resist groupthink.
The dangers of information cascades and how a unanimous decision by a group of people may originate from just one strong individual. If a strong-willed advocate of an initiative goes first, perhaps the next person softens or eliminates his or her concerns. By the time everyone weighs in no one wants to say No. In other words, a possible minority position becomes the majority one!
What rocked
He provides quite a few examples of his points, many drawn from his life as a strategy consultant.
The insight that these biases/traps do not operate independently of each other, but instead show up in clusters in different situations.
I thought I did not need to read this book because I had already read books by, among others, Michael Lewis (“The Undoing Project”), Daniel Kahneman (“Thinking Fast and Slow”) and Dan Ariely (“Predictably Irrational”). But what those books did was to talk about definitions and examples of specific cognitive biases. What these books never really did was to give practical tips on how to deal with the biases. This book takes the next step and provides suggestions on how to deal with cognitive biases and provides a blueprint for a decision architecture.
At the end of every chapter is a summary of the important points that have been explained. This is relevant and helpful.
What sucked
I wish he had named more people and companies in his anecdotes instead of keeping these confidential. Stories have a much bigger impact if you know the identities of the places and people in it!
Conclusion
This book should inspire you to view yourself as the architect of the decision processes in your group/organization. If, before your next important decision, you give some thought to deciding how you will decide, you will be on the right track. And you may avoid making a terrible mistake.