I love reading widely and applying ideas from different fields to leadership and coaching. This article draws from World Champion Poker player Annie Duke’s book “Thinking in Bets” which explores the ingredients of good decision making. This may appear an unlikely source of wisdom for leaders, but Annie makes the case that Poker – a game that requires players to make a high volume of quick decisions that have immediate consequences – is fertile ground for learning about how to make good decisions. What follows is my attempt to pull from her work some key points I hope you will find useful.
We’re not as smart as we think we are
Most people want to feel competent and have a positive view of themselves – we like to think we’re smart and good at making decisions. There are good evolutionary reasons for this that I won’t go into now, but this drive for a positive self-narrative leads to biased thinking that affects our ability to improve decision making.
Resulting – A form of hindsight bias
“Resulting” is our tendency to judge the quality of decisions by the corresponding outcome. If something good happens after a decision, we say ‘that was a good decision’. If something bad happens, we say ‘that was a bad decision’. Annie argues that this is a poor model for assessing decision quality. Your excellent strategy may fail, and your poor decision could yield a great result. Binding your assessment of decision quality to outcomes is unhelpful because it will stop you from analysing decisions that precede positive outcomes and lead you to doubt good decisions simply because they didn’t deliver the outcomes you hoped for. Of course, decisions do influence outcomes, but our cognitive bias tends to ignore the role of probability and this limits our ability to learn and improve decision quality over time.
Luck or Skill? It depends who you are talking about 😊
Most outcomes in business and in life are probabilistic in nature. They arise from a mix of skill and luck. A useful goal for business is to maximise the influence of skill and minimise the influence of luck. To do this we need to clearly discern between skill and luck when we are assessing why certain outcomes occur. One of our challenges is that we tend to apportion luck and skill differently depending on who we’re talking about. Let’s assume I’m a fairly confident person. If I make a decision that doesn’t lead to desired outcomes, I might put it down to bad luck, blame a colleague, or highlight unforeseeable changes in the market or some other external factor. If a decision someone else makes results in a negative outcome, then I will likely arrive at a different conclusion – ‘they got it wrong!’ Conversely, if my decision or recommendation goes well my brain shouts ‘I knew I was right!’, but if someone else’s goes well it concludes “they just got lucky.” Alternatively, if I lack confidence in myself, I will be overly self-critical when bad things happen and discount my contributions when good things happen. Regardless of the personality type, the risk is to miss the opportunity to accurately assess the role played by my skill or the skill of others versus the influence of probability.
Let’s say a CEO is discussing Sales strategy with their Sales Director. They have different perspectives on the best strategy to increase revenue by 4% in the next quarter. After strong disagreement and discussion, the CEO goes with the Sales Director’s recommendation. If, in the next quarter, revenue decreases the CEO might think ‘I knew it was the wrong strategy – I shouldn’t have given in’. The Sales Director might think – ‘I was just unlucky, nobody could’ve predicted that market event’. If revenue increases, the statements may be reversed – the CEO thinks ‘they just got lucky, nobody could’ve predicted that market event’, while the Sales Director is thinking ‘I knew I was right, the CEO should listen to me more.’ Not much learning will come from either perspective. Regardless of what happens to revenue in the quarter, it would be far better to ask questions like “Did we make a good decision given what was known at the time we made it?” “Could we have overlooked something important? If so, how do we avoid overlooking that next time?”. The answers to these questions will be valuable whether revenue went up or down because they are focussed on learning rather than preserving a positive self-image.
Diverse viewpoints result in better decisions
Inviting credible dissenting voices into a conversation and seeking to understand their perspective is very important to mitigate the risk of decisions being overly influenced by unconscious bias. One way to cultivate understanding and breadth of consideration is to consciously argue the case for an opposing viewpoint. The CEO in the above example could ask herself, if I were trying to convince the Board to endorse budgets required for the Sales Director’s strategy, what compelling arguments would I put forward? This opens the CEO’s mind to learning more about other perspectives and is likely to result in a much better strategy overall.
Build a culture that encourages people away from defending false positive self-narratives
People will adopt behaviours valued by the groups they identify with and avoid behaviours that are punished or frowned upon. Holding each other accountable to values and principles agreed in advance will significantly enhance an Executive Team’s performance. The team agreement can include specific values and principles that invite people out of their natural inclination towards perpetuating false positive self-narratives. Credible scientific research papers must highlight assumptions made, possible problems with methodology and other papers that contradict their conclusions. Exec Teams could emulate this in some way, for example, by including a value of ‘Full disclosure’ to encourage people to be transparent about self-identified holes in their own reasoning – “I’m 70% confident about this idea. I have assumed X, Y and Z are true, but accept that they may not be. In addition to building the business case for my idea, I’ve sourced some market intelligence that suggests the idea is a bad one and I’d like you to challenge my thinking so I can see as many angles on this as possible.” Some might interpret this statement as weakness in the leader, when in fact its much closer to truth and opens the possibility for collective decision making rather than fearful (and privately non-committal) agreement with the loudest, most confident voice at the table. Values that support diversity of credible opinion, transparency, robust discussion, continuous learning (from success as well as failure) will help to improve the team’s decision quality over time.
Structure and Process with a different lens
Social norms operate within structures and processes that reinforce or work against them. If a CEO is trying to encourage diversity of thinking then meetings need to be designed to have enough time for deeper discussions, and to invite multiple perspectives on matters being discussed.
When building strategy its helpful to start by imagining the future and then track backward to the present to define the steps that will get you there. However, we know that people tend to be overly optimistic when thinking in this way. Once this first draft of vision and strategy is defined, a ‘pre-mortem’ is an effective process that reduces risks introduced by over-optimism in the planning phase. Perform a pre-mortem by asking everyone in the team to imagine we have failed in realising the strategic vision then ask them to privately write the history of the failure. What went wrong, why? What did we not see coming? Once individual thinking is recorded the histories are read aloud and the team can start to refine the strategy. Getting people to record their own thoughts before reading them out is another simple but effective process that improves decision quality. Our opinions are very easily influenced by other’s opinions. As soon as one person speaks in a room, you can guarantee that it will influence the thoughts others have. It is much better to get all thoughts out of people’s heads before they can be massaged away by the words of others. These are just a few of a number of processes you could consider to improve decision quality over time.
I hope you have enjoyed my take on some of the ideas Annie Duke presents in her book ‘Thinking in bets’. You’ll find many more useful insights in the book if you’re looking to improve the quality of your decisions… stay safe.
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