Debiasing – How Leaders Can Avoid Biased Decision-Making

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Business leadersI recently read an article that summarized an interview with Nobel Laureate Richard Thaler. The article, titled Debiasing the corporations: An interview with Nobel Laureate Richard Thaler, captured five of Dr. Thaler’s thoughts about how to eliminate (or at least reduce) bias in corporate decision making. Certainly I think that’s important, but it occurred to me that his five recommended steps can help de-bias any decision making. The abridged interview is fairly short and well worth reading, and I encourage the Noble Readers to do so. I would like to make a couple of points that I think are very important.

Write stuff down

If a decision is important (and we’re talking about important decisions, not where to go for lunch), then it’s important enough to memorialize:

  • The data and information that was used to make the decision.
  • The logic that was used to arrive at the decision, including the options or alternatives considered and why the rejected ones were rejected.
  • The expected outcome of the decision – quantified if at all possible (use a range of outcomes, such as, “We expect that gross revenue will increase to between X and Y.”
  • Establish a date by which you expect the results to be obtained. Review the decision and results on or shortly after that date.

Nudge decisions of others if your decision requires other people to make decisions

“Nudging” is a term coined by Dr. Thaler. It means framing decisions in a manner that takes advantage of the ways in which human beings actually behave so that the more desirable decision is the one most frequently taken. As an example, both Germany and Austria ask people to become organ donors when they apply for a driver’s license. About eight percent of Germans agree to be organ donors while the comparable percentage in Austria is over seventy percent. The difference is in the framing of the option. Germans must opt in to being donors while Austrians must opt out. Austria framed the choice to take advantage of humans’ tendency to choose the default option (opting in for Austrians).

Use technology to help

Humans tend to over-emphasize non-quantitative factors in making decisions. A classic example can be drawn from professional football scouting where the scout’s opinion (scouts are usually very experienced former players or coaches, so their opinions do matter) is often non-quantifiable. The movement in professional sports, however is toward a much more quantifiable rating of potential players – how fast are they, how strong are they, how many days were they unable to play due to injury, what are their statistics? This hard data can be combined into some algorithm to deliver a score that can then be used and against which actual performance can be measured leading to continuous improvement of the algorithm. This is not something that can be completed overnight, but can lead to enormous improvement in the quality of decision making.

Dr. Thaler makes a couple other points, but I’ve previously posted on those topics. Like most things worth doing, improving decision making requires a sustained and disciplined effort, but that’s what leaders should be doing.

Thoughts?

Read more insights by Firestorm Principal, Guy Higgins.

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