Harvard Business Review – Leaders as Decision Architects summary

This is a long summary of an article that caught my attention a few years ago.  Sharing the summary here.

We have the opportunity to alter the environment in which decisions are made to encourage better choices

5 Step Approach:

1. Understand errors can occur
2. Determine if behavioral issues are a factor
3. Pinpoint underlying causes
4. Redesign decision making to mitigate the negative impact
5. Rigorously test the solution

Poor decision-making comes from insufficient motivation and cognitive biases

Humans have two modes of processing information:

1. Instinctive/emotional thinking = automated; relies on mental shortcuts for an immediate payoff
2. Slow, logical, and deliberate thinking

Problem

• People act in ways that contradict to their interests
• People work to encourage others to switch from their own beliefs to be better aligned with theirs

To determine which mode is causing problematic behavior, companies should ask:

1. Is the problem caused by people’s failure to take any action at all? (lack of motivation)
2. Are people taking action but in a way that introduces systematic errors? (problem with cognitive biases)

Solution

• Common sense can go a long way in diagnosing underlying causes
• Through some simple adjustments, executives can produce powerful benefits for their employees and organizations
• Instead of trying to rewire the human brain, adjustments can be made in the environment to drive improvements at little to no cost
  • Vary the order in which alternatives are presented (via wording)
  • Adjust the process by which they are selected
  • Carefully choose defaults

Levers to Improve Decision-Making

• Trigger System 1–emotions and biases that accompany System 1 thinking
  • Arouse emotions
    • Executives should strengthen emotional connections with their organizations to lower employee turnovers and improve performance, as measured by customer satisfaction
  • Harness biases
    • Executives can also use cognitive biases to their advantage
    • Ex. Behavioral Insights Team (BIT) collaborated with UK Driver and Vehicle Licensing Agency to reduce the numbers of people delinquent in paying their vehicle taxes.
      • They sent notifications “written in plain English” and included a photo of vehicles in question in some letters
      • Rewritten letters alone increased the number of people who paid their taxes by 6% and 20%, respectively
      • BIT focused on loss aversion to influence better decision-making (losses are twice as powerful as gains)
  • Simplify the process
    • Organizational processes often involve unnecessary steps that lower motivation or increase the potential for cognitive biases
    • Ex. A hospital’s implementation of a centralized patient care system motivated doctors to keep information up-to-date
• Engage System 2–greater deliberation and analysis in decision-making
  • Use joint, rather than separate, evaluations to reduce bias
    • Joint evaluation nudges employers to focus more on past performance and less on gender and implicit stereotypes
      • Hiring decisions, job assignments, product development, investment alternatives, setting strategic directions, etc.
  • Create opportunities for reflection
    • Reflection has a beneficial impact on employees’ on-the-job performance, training and employee development
  • Use planning prompts to help people plan/follow through and use reminders to highlight goals
    • For projects that require a team effort, have members create clear maps for reaching goals that detail the “when” and “how”
    • Reminders have the ability to reduce customer dishonesty (insurance company mileage form example)
  • Inspire broader thinking perspectives
    • Instead of “what should I do?” ask, “what could I do?”
    • Helps to think past b&w to consider shades of gray
  • Encourage the consideration of disconfirming evidence
    • When we think a particular course of action is correct, our tendency is to interpret any available information as supporting that thinking (confirmation bias)
    • Once we invest resources in a course of action, we justify those investments by continuing down that path (escalation of commitment)
      • Together, these biases lead decision-makers to ignore the possibility of superior alternatives
    • Organizations can bypass this problem by encouraging counterfactual thinking (asking how events might have unfolded had they taken a different course of action)
      • Rotation brings a new set of eyes to scrutinize past decisions & encourages people to make disciplined choices
• Bypass Both Systems–create processes that automatically skirt System 1&2
  • Set the default
    • Changing the default for standard processes can have a powerful impact on ultimate outcomes, especially when decisions are complex or difficult (ex. automatically enrolling employees in a retirement plan)
  • Build in automatic adjustments
    • Construct adjustments that account for poor System 1 and System 2 thinking (ex. add buffer time to projects)

Choosing The Right Lever

• The best way to influence results is to bypass both systems, however, creating a “one size fits all” approach may not be feasible or desirable
• System 2 overrides mistakes caused by System 1, but cognitive effort becomes a limited resource
  • Using it for one decision means that it may not be available for others
  • Additionally, engaging in System 2 might drain energy and cognitive resources, thus diminishing effort and persistence

Testing the Solution

• Identify the desired outcome: should be specific and measurable
• Identify possible solutions and focus on one
• Introduce the change in some areas of the organization (the “treatment group”) and not others (the “control group”): randomize entities