Why We Make Bad Business Decisions

Because we believe what we want to believe, not what is true.

Researchers used a card trick in a simple decision task to identify a dissociation between awareness of the initial choice and the outcome when this has been surreptitiously altered. Participants were givena choice to make in the attractiveness of two female faces shown on two cards, and then asked to justify their choice as they examined the card with the alternative they had allegedly chosen. In some trials, the experimenters covertly switched the cards. In the majority of such trials, participants failed to recognize the switch, and proceeded to justify their choice of the card they were handed, although it was not the one they had selected. (Credit: Johansson)

The initial reaction here is to say that would never happen to me… I would notice the switch. Someone made a good point in the comments (on Zack's site) that participants aren't expecting a switch (they assume researchers won't lie to them) and thus are less likely to detect it. That is true, but it is still surprising that more people didn't see the switch.

But that isn't the point. The point is that they justified their selection, even though it was incorrect. This is more common than we think. (you can read more about it in this old post) How does this affect business? We tend to justify bad decisions. It happens all the time. This is why analysis done before hand doesn't just need to state the final decision, but what you expect the outcome(s) of that decision to be. Then (and this is the step people rarely do) you need to re-visit the decision later and analyze it. Did what you think would happen really happen? If not, why? Was it beyond your control? Was it bad information? Was it bad analysis? Was it poor execution? Keep track of your decision making, and like anything else, it will improve over time. The best way to avoid these cognitive biases is to be aware of them.

  • I also like Covey’s explanation for bad decisions being the result of either winning or loosing win/loose deals.

    Covey says we make bad deals because we either don’t have a “walkaway” strategy or aren’t imaginative enough to come up with a “win-win” scenario. Both are pRobably the result of “believing what we want to believe” … i.e. not properly valuing the other party’s role in our buisness dealings.