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

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