During my career I have observed many policy decisions being made. Some of those decisions amounted to strategic errors by very smart people. In some cases, there were no attractive options to begin with so decision makers were faced with choosing the lessor of two evils. In most cases, however, capable decision makers fell victim to innate cognitive biases. This blog is the first of a series on strategic mistakes attributed to those cognitive biases.
Human brains do not process information objectively and logically like a math problem. There are valid emotions involved. Additionally, the human brain has evolved with certain cognitive biases that helped us survive for about 3 million years. Generally, each human instinctively processes information as if they are the center of the universe. This is an important defense mechanism but has inherent shortfalls in making decisions for organizational issues beyond one’s span of cognitive control. The industrial and technological revolutions occurred so quickly that our brains face entirely new challenges for which they have not evolved. Even the state system began at the Treaty of Westphalia are recent events in the scope of human development and natural history.
The first strategic error is to not think through a strategy at all. A common example is the decision to invade Iraq with no real strategy for managing the ensuing chaos or for re-organizing Iraqi society after decades of dictator rule and centuries of sectorial conflict between Sunni and Shi’a Muslims. This is not Monday-morning quarterbacking because we can observe that the information needed to consider these aspects was readily available.
Why do so many decision makers fall victim to this error? There are several demonstrated cognitive biases that can explain these errors, and they all revolve around wishful thinking. People defend their decisions by discounting risks or believing that they are effectively in control and events will proceed as they want them to. The Positive Bias or “valence effect of prediction” are the tendencies for people to overestimate the likelihood of good things happening rather than bad things.
In our Iraq example, the quotes are plentiful and telling: “We will be greeted as liberators,” said the Vice President. “The insurgency is in its last throes,” he stated at what turned out to be the horrible beginning of the insurgency. The estimate that oil revenues would pay for the war, that Shi’a tribes would share wealth and power with Sunni tribes after years of oppression are other examples. The political leaders dismissed the military leaders’ estimates of troop requirements as excessive because they did not fit their pre-conceived beliefs.
Other decision makers do not want to be pinned down to a set course and believe events will work themselves out favorably. Additionally, building and executing a specific strategy may forego chance opportunities people believe will arise. The Chinese philosopher Lao Tzu once said, “If you do not change direction, you will end up where you are heading.” This statement demonstrates that our enterprises are going in a direction; the only question is whether that direction is deliberate and has achievable target objectives at which the group is aiming. Muddling through is okay in some social circumstances but not business or foreign policy. In these latter cases there are opponents who are also making plans to defeat or leverage our team.
We can mitigate against the positive bias or valence effect through deliberate planning. Even in apparently simple situations, it pays to determine desired goals. We should think through who relevant stakeholders are and where their incentives lay. We must define our assumptions and question whether they are accurate. We must arrange specific ways and means with a fairly accurate theory of determinism on how those ways and means will actually achieve the objectives. Ideally, we should identify measures of effectiveness to track our progress and have midpoint evaluations whether we are on track. We should seek out sources of risk and consider the most likely impact of those risks.
These activities are not natural. It is easier to believe that everything will turn out okay. And maybe it will. But that is a big risk when it comes to business enterprises where the outcomes can be measured in an objective bottom line.
I recommend David Brook’s book, “The Social Animal” to learn more about how our brains operate.