Sunday, December 10, 2006

Rational decisions?

I'm currently reading Strategy Bites Back and I'll write a proper review in time.  Before then I read something on Friday that really made me think.  The book is organized a series of essays, summaries and reprints - the "bites" of the title.  The bite I read on Friday was by Spyros Makridakis who is a business school professor so he should know what he's talking about.

What he says is: manager have a hard time making rational decisions. 

They may think they are making rational decisions but they probably aren't.  And its not just managers, its all of us - even engineers!  This is because....

  • Most people only look for evidence to support the point of view they hold.  If we believe something we don't tend to look for opposing evidence.
  • When we do look for supporting evidence we may not always find conclusive evidence but we'll think positively of the evidence we do find - even if it is isn't quite what we needed.
  • We are far more likely to remember evidence that supports what we think than evidence that challenges what we think.
  • Making decisions in groups doesn't necessarily help because we suffer from "group think".
  • Managers are in a worse position because they rely on information filtered at various levels below them, since everyone below them suffers from the same problem it is unlikely that opposing evidence will ever get in front of a senior manager.
  • Finally, many of the things that our culture leads us to believe are true aren't, e.g. we make better decisions when we have more evidence - this doesn't hold, indeed, for all the reasons I just outlined more evidence may simply support our initial position.

So making a rational decision is hard, very hard.  And not just for us, what about for our competitors, our employees, our employers and everyone else in our business?  The same effect works on them too so they won't act rationally, and how do you predict what an irrational person or business will do?

My question is: if making a rational decision is so hard what can we do about it?

At the moment I don't know, I find the whole thing quite worrying.  This much is clear: we need to learn to accept opposing evidence and we need to make a positive effort to seek it out to correct our natural bias.

Which makes the question: how do I seek out evidence and information I might otherwise avoid?

Again I don't have the answer.  It does seem that putting yourself in unusual situations might help, opening yourself to new ideas and talking to different people should help.  I'm also reminded of Scenario Planning – one promise of scenario planning is to help you consider the world differently and practise for difference scenarios.

For the moment thought the world just got a lot more irrational.