“Science is organized knowledge. Wisdom is organized life.” – Immanuel Kant
There are many factors that influence how we make decisions, both as individuals and within groups and organisations, and that may therefore influence the quality of decisions that we make.
The quality of individual and collective decision-making offers both risk and opportunity for individuals and for organisations. By understanding and enhancing how decisions are made, the risks can be mitigated and the opportunities realised.
Decision-making by individuals
As individuals, we are faced with many decisions or choices every day, some more significant, others less so. One estimate puts the number of decisions that we make each day at up to 10,000.1
Decision theory makes the assumption that people are “rational optimizers”; that is, that we always choose the option with the greatest expected utility. However, in recent decades, extensive scientific evidence has shown that we do not act as rational optimizers. Instead, the decisions that we make are influenced by many “non-rational” cognitive and behavioural factors, including:
- Defaulting to an automatic habitual or emotional response.
- Errors of our associative, non-rational subconscious (System 1 thinking).
- Our existing expectations, assumptions and beliefs.
- Emotions such as fear or anger.
- Conformity (or “herd mentality”).
- Timidity or rashness.
- The limitations of our perception.
- That we usually consider just ‘one plan at a time‘.
- Cognitive biases such as confirmation bias, anchoring, and many others.
- Choice overload (or “analysis paralysis”).
- Decision fatigue.
Studies have also shown that having a high IQ does not make people any less prone to making irrational decisions.2 A separate measure called Rationality Quotient (RQ) is being developed to assess people’s ability to make rational decisions which are less affected by biases.3
Unlike IQ, which is determined by genetics and environmental factors in early childhood and which cannot be significantly altered in later life, RQ depends mainly on the ability to assess one’s own knowledge and thinking – an ability called “metacognition”, which can be taught and practiced.
Decision-making within organizations
In response to the greater complexity of today’s world, most large organisations are moving or have moved away from a “top down” or “command and control” approach to management (i.e. one in which senior leaders make all the decisions) and now instead seek to delegate decision-making down to the lowest appropriate level within the hierarchy. This means that there are many decision-makers within these organisations, each beset by the many challenges to good decision-making that face all individuals (see above).
In addition, large, complex organisations often have aspects of their structure, processes and culture which inhibit good decision-making or even inhibit decision-making altogether. For example:
- Aspects of structure, process and culture in the financial industry have been shown to have made smart employees “functionally stupid”, for example by shutting down their risk intelligence, and so directly contributed to the global financial crisis that began in 2008.4
- Experiments have shown that individuals are more susceptible to unconscious biases when they believe that they will have to persuade others of their perspective or defend their decision to others, as is often necessary within large organizations.5,6
- Groups may suffer from deadlock or groupthink.
- My own action research with a large organisation showed that a lack of clarity on “basics”, such as what was the decision to be made, who should be the decision-maker(s), and what would be the process for making the decision, led to failures of decision-making.
Research has also shown that collective problem-solving by groups can be much more effective than problem-solving by individuals7, with groups’ effectiveness determined not by the average IQ or highest IQ within the groups, but instead by the way in which the groups interact and argue.8
For any organisation therefore, it is important to consider both the factors that affect the decision-making of all of us as individuals and the organisational factors that affect decision-making by individuals and groups within the organisation, and to then develop relevant, tailored approaches to support better decision-making.
1: “Making your mind up”, NewScientist, 12 November 2011
2 : “Stupid is as stupid does”, NewScientist, 30 March 2013
3 : Work on Rationality Quotient by Keith Stanovich, University of Toronto
4 : Andre Spicer and Mats Alvesson, Journal of Management Studies, vol 49, p 1194
5 : Hugo Mercier and Dan Sperber, Behavioural and Brain Sciences, vol 34, p57
6 : Journal of Behavioural Decision Making, vol 20, p125
7 : Thinking and Reasoning, vol 4, p 231
8 : Science, vol 330, p 686