Overcoming the psychological traps of decision-making

How can we avoid falling into common psychological traps when making decisions? Scott Way, Director, BDO Industrial & Organisational Psychology outlines what you need to know.

A few years back, I delivered a webinar and associated article for the AICD, alerting board members and senior organisational leaders to the many psychological traps we can unwittingly fall into when making important decisions.

The information was based on the Nobel Prize-winning work of Daniel Kahneman and his book ‘Thinking Fast and Slow’. He and his research partner, Amos Tversky, demonstrated that we are most susceptible to our many inherent biases when we make fast decisions. They asserted - and subsequently proved - that when faced with complex problems and issues, it is essential that we slow down our thinking.

The works of Kahneman, Tversky and others alerted the world to bias, to the point that it is now a mainstream concept. Now, Daniel Kahneman’s latest book, ‘Noise’, is the next instalment in his quest to highlight the fragility of our decision-making. In a new 2024 AICD webinar, I discuss ‘noise’ and other psychological traps in decision-making. I also explore the tools we can use to help overcome them – advocating for boards and senior leaders to take greater care and time when navigating complex decisions.

What is 'noise’?

What Kahneman refers to as ‘noise’ is also known as ‘variance’. At a board level, this occurs when key leaders with different skills and experience attend to different aspects of a problem and arrive at varying outcomes. This ‘scatter’ becomes hard to reconcile and resolve during decision-making. Even professionals from the same discipline will arrive at differing conclusions or diagnoses when looking at the same issue or patient. In part, this is why we seek out second opinions.

Kahneman suggests that in order to overcome this ‘scatter’ effect, organisations and professional bodies conduct a ‘noise audit’, whereby these professional assessments are compared and the critical items to focus on are identified. This focus criteria can help avoid - or at least reduce - the distracting noise.

Think rationally

In his book ‘Rationality’, Canadian-born, American-raised psychologist Steven Pinker suggested that one way to reduce the range of variance was to think rationally, using sound evidence and information. He lamented, however, that few people - even those who are well-educated - understand how to analyse and interpret data effectively.

For example, surveys typically present outcomes by ranking items from best score to worst – leading us to work on improving the bottom-ranked items. Often, the lowest-scored items are symptoms of a more significant issue and require further analysis before action is taken.

Those who are knowledgeable in data interpretation know to ask for another level of inferential analysis to identify ‘root cause’ – namely, the item/s that seem to significantly impact the other scores.

Pinker proposed the 4Cs of rationality as a framework for mitigating the impact of variance:

• Make sure you complete the data and information
• Cognition - allow sufficient time and place to think through an issue
• Ensure decision-makers have the necessary computational skills
• Make consistent decisions using an agreed decision-making framework.

Collective intelligence

In his latest book ‘Hidden Potential’, American psychologist and author Adam Grant explores how many factors, including some myths, can influence our thinking and decision-making. One such myth is that a decision made by a group is inherently better than one made by individuals.

Grant’s research - and that of others - shows that decisions made by a small group are often worse than those made by an individual, as the group is heavily influenced by ‘groupthink’ and gravitates to the lowest common denominator or perspective. He points out that this, in combination with collective and individual optimism, is perhaps the most dangerous blend of psychological traps for decision-making groups.

To overcome this, Grant advocates using what he calls the ‘wisdom of the hive’ or canvassing the views of much larger groups, even crowdsourcing possible answers and solutions. If this is not possible, then he proposes the use of ‘brain writing’ (as opposed to ‘brainstorming’), whereby individuals are asked to write their proposed solutions to issues on paper prior to any group discussion. These are passed to a chairperson to read out individually, with each group member allowed time to explain their thinking and for the group to explore their rationale.

Robert Heifetz and colleagues present another tool to assist our thinking and decision-making in their book ‘Adaptive Leadership’. Heifetz et al suggest that leaders must modify their management, leadership, and decision-making according to the situation. Some situations have a known or technical solution, whereas others are more complex and require a different response.

In the latter situation, they suggest that one of the functions of effective leadership is to ‘manage the distress’. In other words, deliberately slow down deliberation and decision-making so that important matters are fully considered and not rushed. John D Rockefeller, for example, was known to conclude meetings without calling for a vote and reconvene the next day to allow time for reflection before making a decision.

All the above tools and processes (in addition to those discussed in the earlier article and webinar) are intended to overcome hasty decision-making - which is easily skewed by bias and noise.

Board members and senior leaders are entrusted to make thoughtful, sound decisions for and on behalf of others. To fulfil this duty, they must be aware of the many psychological traps that lurk in decision-making and use the available tools to avoid them – resulting in better governance for the organisation they serve.