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“spotlight” effect.
To illustrate the weakness of the decision-making process in most organizations, Sibony drew an analogy to the legal system: Imagine walking into a courtroom where the trial consists of a prosecutor presenting PowerPoint slides. In 20 pretty compelling charts, he demonstrates why the defendant is guilty. The judge then challenges some of the facts of the presentation, but the prosecutor has a good answer to every objection. So the judge decides, and the accused man is sentenced. That wouldn’t be due process, right? So if you would find this process shocking in a courtroom, why is it acceptable
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The discipline exhibited by good corporate decision makers—exploring alternative points of view, recognizing uncertainty, searching for evidence that contradicts their beliefs—can help us in our families and friendships as well. A solid process isn’t just good for business; it’s good for our lives.
What you may not know is that the pros-and-cons list has a proud historical pedigree. In 1772, Benjamin Franklin was asked for advice by a colleague who’d been offered an unusual job opportunity. Franklin replied in a letter that, given his lack of knowledge of the situation, he couldn’t offer advice on whether or not to take the job. But he did suggest a process the colleague could use to make his own decision. Franklin said that his approach was “to divide half a sheet of paper by a line into two columns, writing over the one Pro and over the other Con.” During the next three or four days,
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Research in psychology over the last 40 years has identified a set of biases in our thinking that doom the pros-and-cons model of decision making.
Cole is fighting the first villain of decision making, narrow framing, which is the tendency to define our choices too narrowly, to see them in binary terms.
guts. Our normal habit in life is to develop a quick belief about a situation and then seek out information that bolsters our belief. And that problematic habit, called the “confirmation bias11,” is the second villain of decision making.
At work and in life, we often pretend that we want truth when we’re really seeking reassurance: “Do these jeans make me look fat?” “What did you think of my poem?” These questions do not crave honest answers.
This brings us to the third villain of decision making: short-term emotion. When we’ve got a difficult decision to make, our feelings churn.
We have kicked up so much dust that we can’t see the way forward. In those moments, what we need most is perspective.
the fourth villain of decision making is overconfidence. People think they know more than they do about how the future will unfold.
A study showed that when doctors reckoned themselves “completely certain” about a diagnosis, they were wrong 40% of the time.
And what we’ve seen is that there is a villain that afflicts each of these stages: You encounter a choice. But narrow framing makes you miss options. You analyze your options. But the confirmation bias leads you to gather self-serving information. You make a choice. But short-term emotion will often tempt you to make the wrong one. Then you live with it. But you’ll often be overconfident about how the future will unfold.
The value of the WRAP process is that it reliably focuses our attention on things we otherwise might have missed: options we might have overlooked, information we might have resisted, and preparations we might have neglected.
A KPMG study25 of 700 mergers and acquisitions (mentioned previously in the introduction) found that 83% of them did not boost shareholder value.
executives who weigh more options actually make faster decisions. It’s a counterintuitive finding, but Eisenhardt offers three explanations. First, comparing alternatives helps executives to understand the “landscape”: what’s possible and what’s not, what variables are involved. That understanding provides the confidence needed to make a quick decision.
One day, the store set up a sampling table with 6 different kinds of jam, and customers loved it; another day, the store set up a table with 24 different kinds of jam35, and it was even more popular than the first. The surprise came at the cash register: Customers who’d chosen among 6 jams were 10 times more likely to actually buy a jar of jam than customers who’d chosen among 24!
executive board considered more than one alternative, they made six times as many “very good” decisions. (Specifically, 40% of the multi-option decisions were rated “very good,” compared with only 6% of the “whether or not” decisions.) That is not a small effect.
Multitrackers were 42% more likely to be strong rebounders than companies that were solely promotion focused, and they were 76% more likely to be strong rebounders than companies that were solely prevention focused. Thinking “AND not OR” turns out to be good corporate strategy.
Hayward and Hambrick were right on all counts. As each of these three factors increased, so did the tendency of a CEO to pay a higher premium for an acquisition. As one example, they found that for every favorable article written in a major publication about the CEO, the acquisition premium paid went up by 4.8%. That’s a $4.8 million boost on a $100 million acquisition! Because of one flattering article! And a second article would inflate it by another $4.8 million.
Because when we make decisions based on reviews, we are acknowledging two things: (1) Our ability to glean the truth about a product is limited and subject to distortion by the company that makes it; and (2) For that reason, we are smarter to trust the averages over our own impressions.
In addition, Mulcahy announced that executives, on a rotating basis, would have to serve as the customer officer of the day. The customer officer would have to deal with every customer complaint that came into corporate headquarters that day. Mulcahy said, “It keeps us in touch with the real world. It grounds us. It permeates all of our decision making.”
Another variety of close-up involves going to the genba74,
How’d the experts do? They underperformed, to say the least. Even the best forecasters did worse than what Tetlock calls a “crude extrapolation algorithm,”
“If you give entrepreneurs data that has to do with the future, they just dismiss it,” she told Inc. magazine. Entrepreneurs don’t seem to believe that forecasting is worth the bother: One survey found that 60% of Inc. 500 CEOs had not even written business plans before launching their companies.
Sarasvathy82, the professor, found that this preference for testing, rather than planning, was one of the most striking differences between entrepreneurs and corporate executives.
By way of comparison, imagine if the U.S. Olympic track coach used two tests in selecting the men who’d run on the 4x100 relay team. Test 1: Get the man on the track to see how fast he runs. And test 2: Meet him in a conference room and see if he answers questions like a fast runner would. Note that in most of Corporate America, our hiring process looks more like test 2 than test 1. Let’s all slap our foreheads in unison.
Research has found that interviews are less predictive84 of job performance than work samples, job-knowledge tests, and peer ratings of past job performance. Even a simple intelligence test is substantially more predictive than an interview.
For decades, psychologists have been studying this phenomenon, called the “mere exposure”90 principle, which says that people develop a preference for things that are more familiar (i.e., merely being exposed to something makes us view it more positively).
we find losses more painful than gains are pleasant.
What would I tell my best friend to do in this situation?
Define and enshrine your core priorities.
“stop-doing list
What, specifically, would I have given up to carve out the extra three or four or five hours that I’ll need?
List A contained the mission-critical tasks, and List B contained the things that were important but not core, “the dreary, repetitive stuff, such as chipping and painting.” After compiling the two lists, Captain Abrashoff declared war on List B.
“productive interruption,” one that reminds us of our priorities and aspirations. It spurs us to get back to List A.
But getting distance doesn’t require delay or suffering. Sometimes it happens almost instantly. Thanks to a guardrail—Do first, apologize later—we know what the right choice is. Thanks to a simple question—What would I tell my best friend to do in this situation?—we see the big picture. Thanks to a $10 wristwatch that beeps on the hour, we are more mindful of the priorities we’ve set for ourselves.
How can we prepare ourselves for both good and bad outcomes? And how would we know if it were time to reconsider our decision? In other words, we must Prepare to Be Wrong.
