The Big Idea: Before You Make That Big Decision… is a very interesting article appeared in HBR, issue June 2011. Authors are Daniel Kahneman, Dan Lovallo, and Olivier Sibony. Daniel Kahneman was awarded the Nobel Prize in Economic Sciences in 2002 for his work (with Amos Tversky) on cognitive biases. Dan Lovallo is a professor of business strategy at the University of Sydney and a senior adviser to McKinsey & Company. Olivier Sibony is a director in the Paris office of McKinsey & Company.
The article is well written and describes different cognitive biases that influence and “biases” our decisions. The objective is to make us aware that cognitive biases exist and to provide help to recognize, and eventually avoid them.
The authors provide a quick list of questions that we should ask ourselves before making big strategic decisions:
- Check for Self-interested Biases: Is there any reason to suspect the team making the recommendation of errors motivated by self-interest? Review the proposal with extra care, especially for overoptimism.
- Check for the Affect Heuristic. Has the team fallen in love with its proposal? Rigorously apply all the quality controls on the checklist.
- Check for Groupthink Were there dissenting opinions within the team? Were they explored adequately?
- Check for Saliency Bias Could the diagnosis be overly influenced by an analogy to a memorable success? Ask for more analogies, and rigorously analyze their similarity to the current situation.
- Check for Confirmation Bias Are credible alternatives included along with the recommendation? Request additional options.
- Check for Availability Bias If you had to make this decision again in a year’s time, what information would you want, and can you get more of it now? Use checklists of the data needed for each kind of decision.
- Check for Anchoring Bias Do you know where the numbers came from? Can there be…unsubstantiated numbers?…extrapolation from history? …a motivation to use a certain anchor? Reanchor with figures generated by other models or benchmarks, and request new analysis.
- Check for Halo Effect Is the team assuming that a person, organization, or approach that is successful in one area will be just as successful in another? Eliminate false inferences, and ask the team to seek additional comparable examples.
- Check for Sunk-Cost Fallacy, Endowment Effect Are the recommenders overly attached to a history of past decisions? Consider the issue as if you were a new CEO.
Excellent article, read more at The Big Idea: Before You Make That Big Decision…
And Daniel Kahneman latest book is forthcoming, October 25 Thinking, Fast and Slow