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Decision Making: Human Bias, Inevitable Irrationality…

…and the Value of Clear Thinking

What is most likely to skew important decisions from the best-balanced choice? The biases we bring to the process of decision-making. Most risk in organizations today is not “from some exogenous contingent event, but rather is driven by the behaviors and decisions of people,” according to Enterprise Risk Management expert Robert F. Wolf, an actuary posting in the Harvard Business Review Blog Network.

This topic is explored in Nobel-Prize winner Daniel Kahneman’s groundbreaking book, Thinking, Fast and Slow , in which he describes the systematic irrationality of human beings and how our biases distort judgment even when facing simple problems and decisions. A few examples include our over-confidence in numbers—even when they are irrelevant or wrong, and our over-reliance on how information is presented in guiding our thinking.

Some biases have served us well for minimizing risks to bodily harm and for playing the odds of past experiences. But Wolf notes that bias is increasingly damaging in our knowledge-based work environment. Here what has worked in the past may not apply in the future or when circumstances arise that have never been experienced before. By falling back on our human biases, individuals add risk and overweight the significance of the wrong information.

What can we do to reduce bias and reduce the risks to key decisions? Kahneman is not hopeful about our ability to eliminate systemic human bias and to become rational beings. And Wolf stabs at it with specific cautions and actions that can be taken to reduce bias in risk management.

In our experience application of a structured, objective approach specifically addresses bias risks in decision-making. By focusing on the thin­king pattern we use when making choices, we can identify what needs to be done, develop the specific criteria for its accomplishment, evaluate the available alternatives relative to those criteria, and identify the risks involved. A systematic approach helps clarify decision-making roles and responsibilities, sharpens the focus on the appropriate performance objectives for each decision, and provides a clear format for making and assessing recommendations.

Disciplined decision-making techniques provide a common language and logic that remove decision making from the realm of personal preference or idiosyncratic behavior in favor of agreements based upon rational consideration of tradeoffs.

Using an objective approach to the way decisions are made does not overcome bias and human fallibility but it can reduce their risks. At the very least, the structured process enables the decision maker to reduce the incidence of errors by providing a systematic framework for guiding rational thinking and for evaluating alternatives.­

To explore how KT processes reduce irrationality within organizations, download Sam Bodley-Scott’s whitepaper, Developing a Thinking Organization. In this paper KT’s Bodley-Scott references Kahneman and explores why the thinking patterns we use to run the majority of our lives cannot, without modification, be relied upon to shape thinking within organizations. He shows how thinking patterns can be modified to produce superior performance for both individuals and teams and what actions can be taken to become a Thinking Organization.

Clear Thinking for a Complex World

For over 50 years, Kepner-Tregoe has worked with the world’s leading companies to improve business outcomes. We recognize the challenges you face from limits to time and resources, increasingly complex operations, and escalating customer expectations.

We provide time-proven rational and data-driven thinking processes that help you reduce costs, improve efficiency, increase quality and exercise control by providing clarity and structure. Because we emphasize skill transfer and sustainability, we provide value for today and every day that follows.

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