The Path to Better Decisions
Stanford professor and best-selling author chip heath tells car lao’ dell why so many decisions are flawed
Carla O’dell: Why don’t we make better decisions?
Chip Heath: Psychologists have spent a number of years studying all of the biases we have, and they’ve found that there are a number of basic ways we think about the world that lead us to the wrong conclusions. For example, we frame decisions narrowly. The typical person only thinks of one alternative when making a decision.
How can we think more broadly and give ourselves multiple options in the decision-making process?
The trick is to force yourself to come up with a second alternative, which is generally not hard, once you discipline yourself. One of the best tricks we’ve learned is what we call ‘the vanishing options test’. Think to yourself, “What if the option I’m thinking about right now suddenly disappeared? What else could I do?”
When you don’t force yourself to do this, your mental spotlight keeps focusing on one option and whether or not you should do that one thing. When we do the vanishing options test with people, we find that about 80 per cent of the time, they come up with something much better than they had initially thought of within three minutes—even if they had been agonizing about the decision for weeks before they did the test.
Some of the hardest decisions we make are those that involve loss and letting go. For example, discontinuing a product line, or getting a divorce. What can we do to make these kinds of decisions easier?
There is a very basic principle called ‘loss aversion’, which means that people would rather avoid loss than acquire gains. Daniel Kahneman and Amos Tversky found that losses are two-to-four times more painful to our brains than equivalent gains are pleasurable. Very often, when we’re going into a new situation at work, we have to give up something in order to get something that’s (hopefully) better. But empirically, the thing that’s coming has to be two to four times as good to be in the ballpark of not regretting the loss. Loss aversion is a recipe for many problems in our personal and professional lives.
Apart from loss aversion, what other cognitive bias undermines our decision making the most?
The biggest bias I see — and one of the harder ones to change—is confirmation bias. When we go into a situation, we’re collecting data about options—things we might do or consider. Confirmation bias is our tendency to collect data in a way that is biased by the hypotheses we walk in with. Say you love Thai food, and a new Thai restaurant opens in town. You may browse reviews of the new restaurant and feel that you’re
reading them even-handedly. But in actuality, you are about twice as likely to read a two-star review as a four star review, because you really want this place to be good.
Getting away from confirmation bias is very difficult. One trick is to learn to ask yourself ‘disconfirming questions’—that is, to test the idea that the opposite of your hypothesis is true. In the workplace, we can do this with each other. For example, ‘There are reasons for doing this merger, but what are the reasons not to do it?’ Of course, the problem in organizations is that, even though disconfirming questions are useful for making good decisions, asking them can make one look like less of a team player. CEOS aren’t always pleased when somebody raises a counter-argument to an idea they’re excited about.
That’s why it’s important to make asking ‘disconfirming questions’ easier. You might start to ask your team these questions as part of your project planning process, or even do a ‘pre-mortem’ exercise and envision everything that might go wrong. By including this as part of the process, people don’t have to take on the unenviable role of ‘devil’s advocate’.
Why have ideas from cognitive science and neuroscience begun to get so much traction in business?
When Prof. Kahneman won the Nobel Prize in 2006, we [academics] recognized that what we had been doing was as important as we thought it was, for all these years. Kahneman started the trend of thinking about how to take these ideas from the research context and farm them out to people at work in organizations.
When it comes to bringing ideas from cognitive science to the business world, the potential gains are huge, and the costs are tiny. If you asked a group of top global leaders about the decisions in their organizations, about half of them will say that they make as many mistakes as they do correct decisions. That is a shocking statistic. Clearly, there is an asymmetric payoff for getting top-level decisions in better shape.