I have often written in the past about biases in decision making. ALL OF US rely to some degree on decision-making approaches that yield sub-optimal results. Most of them are unconscious. An example is the human tendency to use past experiences, even if they are statistically insufficient, to make critical decisions about the future. Other- confirmation bias – It forces us to rely on evidence that conforms to our preconceived ideas and ignores evidence that contradicts our preconceived ideas. There are many more of these.

The discipline of behavioral economics examines the ways in which human psychology intersects with traditional economic theory. The concepts are easy to understand and even easier to apply TO OTHERS when we see examples. However, we rarely see evidence of such decision-making biases IN OURSELVES.

To illustrate and instruct, I often ask a group of executives to take a “quiz” that involves reading a simple three-paragraph story and then answering twelve questions about what they read. That test continues. Read the instructions and then answer the questions. At the end, I will ask you to consider the ways in which your preconceptions or biases may have affected your answers. I’ll include the correct answers, but don’t read any further or you’ll waste your time.

JUST THE FACTS EXERCISE

Read the following story and then respond to the statements that follow with True, False or Unknown.

The supervisor yelled at the new recruit.

The young man waited until the supervisor left and poured sand into the machine, smiling and shaking his head.

Later that month, the boss discovered the problem and fired him.

TRUE FALSEGOLD A STRANGER

I. After being yelled at, the young man poured something into the machine.

II. Two men are involved in this story.

third If the supervisor had not yelled at the young man, he might not have ruined the machine.

IV. It took the supervisor a month to realize that the new recruit had screwed up the machine.

V.Sand was put on the machine.

SAW. One man yelled at another; the new recruit poured sand into a machine; someone was fired.

VIII. The supervisor fired the new recruit.

VIII. The new recruit was a man.

IX. The new recruit took revenge on the supervisor, but the supervisor retaliated in the end.

X. No one was fired.

XI. The new recruit waited until the boss left before pouring sand into the machine.

XII. When the supervisor discovered that sand had been poured into the machine, he fired the young man.

It seems like a fairly easy exercise, but it’s not. Its simplicity illustrates the point that, even in mundane situations, we often rely too heavily on our inner voice of experience, bias, or speculation when making decisions.

The correct answers: number 5 is true; the number 10 is false. All the others are unknown. Go back and tabulate your score. If you got them all right, you are in a VERY small minority. Some questions for those of you who did NOT answer them all correctly:

• What assumptions did you make where no facts were given?

• What preconceptions or biases might be the source of those assumptions?

• When faced with more difficult decisions, how might your decision-making be clouded and what might be the consequences?

• What formal decision-making structures and methods do you have to counteract legitimate or incomplete intuition, as well as biases and preconceptions? How well are those structures and methods serving you?

I help executives create formal structures for legitimate decision making. Those honor experience and intuition, but recognize that ALL of us are overly reliant on getting to the answers we WANT rather than the ones we NEED.