Making Brilliant Decisions in Turbulent Times

Russ W. Rosenzweig

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Times are turbulent, and the media is full of scandal stories. The stories in the news these days are disturbing and riveting, but they often just dance around the heart of the problem: that human decision making processes are sometimes dangerously flawed, and these flaws are especially pronounced in turbulent times.

As the old proverb says, "We do not see things as they are; we see things as we are."

In this paper I will lay out some predictable barriers to making sound decisions in trying times, and then share some useful tools for tackling these stumbling blocks.

Distrusting our own judgments

Our ability to make sound decisions is dependent on the many forms of trust that underpin social relations and institutions, and we often become less trusting in turbulent times. No wonder - the scandals we have been reading about are of such a high profile and stature because they impinge upon these forms of trust.

The scandal stories make great copy, but instead of latching on to them and questioning your trust in people close to you, I wonder if true professionals ought to inwardly shift their distrustful gaze. That is to say, when it comes to decision-making in times of crisis, we must be more distrusting of our own judgments. Or at least, as Ronald Reagan was fond of saying, we should "trust, but verify."

Humans are subject to systematic biases and errors when it comes to judgment and intuition. "Judgment overconfidence" is one example. In 1977 Ken Olsen, then the CEO of DEC, proclaimed "There is no reason for any individual to have a computer in their home." Thomas Watson, the Chairman of IBM in 1943, said, "I think there is a world market for about five computers." These pioneers knew with total - and totally unjustified - certainty that computers were not commercializable.

But judgment overconfidence does not just apply to famous business executives. How often have you witnessed bosses or colleagues displaying judgment overconfidence? Dare I ask whether you yourself have ever failed to collect key factual information when making a decision because you are too sure of your assumptions and opinions?

In their 1989 book "Decision Traps," Ed Russo and Paul Shoemaker articulated a number of additional problems with human decision-making. For example, judgment overconfidence is related to another problem called "confirmation bias:" people are fond of evidence that will confirm, rather than challenge, their current beliefs. Does this tendency sound familiar?

In addition to overconfidence and the confirmation bias, the "recency effect" and the "vividness effect" are two more biases that we as humans face when making decisions. The travel industry is facing its biggest downturn in history. The recency and vividness of those horrible events of September 11 have kept many people at home. In fact, it has never been safer to travel, but we choose to make travel decisions based on emotions rather than facts.

Knowing what we don't know

How do we overcome judgment overconfidence, confirmation bias, the recency effect, and the vividness effect? By becoming more thorough researchers and by being more critical of data that is presented to us.

Remember how burdensome those high school and college research assignments always seemed? In fact, the basic data gathering and fact-finding techniques ("secondary research") that we all learned back then are the simple keys to making more effective decisions. As Confucius once said: "To know that we know what we know, and that we don't know what we don't know, THAT is true knowledge." Know what you don't know. Then, research it like crazy.

Researching has become significantly easier thanks to the Internet, but it's remarkable how infrequently professionals make use of basic secondary research. My favorite tool is the new web-based version of Lexis-Nexis (www.lexis.com), combined with powerful search engines such as google.com. In my opinion, no important decision should be made without first investing an hour to read what's already been written about the subject.

But rigorous secondary research is only half the story. Primary research, too, should not be overlooked. Decision-making in the new product world has well-established tools for data gathering such as surveys, interviews, and focus groups. Should your decision making include basic surveys and interviews? Absolutely - they often can be completed in hours and they are invaluable tools for tackling decision-making stumbling blocks. I recommend the text "Design and Marketing of New Products" by Glen Urban and John Hauser for a nice, well-written primer on such techniques. There are also some terrific new distance learning offerings that explain these techniques (and they can be faster and more entertaining than the textbooks.)

At the Institute of Design we teach newer techniques for primary research that lie at the intersection of marketing and anthropology such as ethnography (observing customers in their "native" surroundings), human factors research, and metaphor elicitation. Even these techniques are simple enough to be employed by professionals in their research practice. I recommend the article "Spark Innovation Through Empathic Design" by Dorothy Leonard and Jeffrey Rayport (Harvard Business Review, November-December 1997) for a terrific overview on these powerful techniques.

My advice is: do the research. Primary knowledge (observation) determines the direction of our opinion; secondary knowledge should determine our confidence.

Learning from the past

Just being aware of these systematic biases will help professionals to make better decisions, but it's not enough. We as professionals often display a bizarre inability to learn from the past. It is tempting to bury the past, particularly in these difficult times, but we must work hard to memorialize and learn from past decisions.

The psychologist Elliot Aronson first noted in his seminal 1971 article that humans have a hard time coming to terms with "wrong" decisions and it's enormously difficult to learn from past experience. "Cognitive dissonance," as he calls it, will distort our memory about what we actually did or said. We will unrealistically blame the failure on others. We will say our original prediction was misinterpreted. We will change our current preferences so that failure seems less important. Basically, we as humans believe that our successes are due to skill, and that our failures our due to bad luck. The clarity of hindsight is an illusion and it often hampers learning from experience.

To overcome this decision-making barrier, I recommend the simple practice of keeping a journal. Through journaling we can articulate in writing what our decision process is and why we make a certain decision, and then we can candidly review that decision later in order to learn from the past. Journaling is particularly effective in times of stress. Medical studies have shown that merely writing about stressful events provide an effective outlet for diminishing stress.

Students in my entrepreneurship classes at the University of Chicago are required keep a detailed journal of their experiences throughout the lifecycle of ideation, research, building, and launching a new business. What is unique about this practice is that students must proactively seek out disconfirming evidence about the business idea - a practice that is difficult for enthusiastic entrepreneurs! We also teach students to learn from failure by studying numerous cases of failed startups, and by writing about failures in their own startup. Entrepreneurial failure should be celebrated - the entrepreneur was bold enough to act in the first place.

The awesome power of simple scheduling software such as Act! and Outlook can be harnessed to help track decisions and insights. Don't just schedule appointments - schedule insights, quotes, and ideas. As professionals we encounter numerous ideas and flashes of insight each day, but most just dissipate into the ether as we are drawn back into our day-to-day maintenance work. Type these insights into Act! as an appointment, and schedule them to pop up some weeks later so that you can review and assess them with a fresh eye.