A Nobel Prize Winning Economist Just Shared His Framework for Making Smart Decisions, and It's Absolutely Brilliant
If you can train yourself to decide things like this, you'll make better choices in life.
When we talk about great leaders, we often talk about decisiveness.
Great leaders don't overthink, we say. They don't succumb to "analysis paralysis." And that makes sense for most decisions, both in business and in life. But that positive leadership quality -- decisiveness -- can bleed into impetuousness and gut-level thinking.
And now, one of the foremost economic thinkers of the last century has published a paper suggesting that a a result, many business leaders go about making the biggest, most consequential decisions of their careers the wrong way.
Big decisions aren't normal
Writing in MIT Sloan Management Review this week, Daniel Kahneman (winner of the Nobel prize in economics), along with Dan Lovallo, and Olivier Sibony, say the root cause for poor strategic decisions is that leaders fail to isolate their human biases and tendencies, which ultimately drives them to make less sound choices. So, Kahneman and his colleagues suggest an approach they call the Mediating Assessments Protocol (MAP). As Jena McGregor of The Washington Post summarized, MAP has a single goal: "To put off gut-based decision-making until a choice can be informed by a number of separate factors." In other words, it's a process that requires a leader or a team to delay articulating which of a certain set of outcomes will turn out to be the best choice.
If you're trying to decide whether to hire a key team member, make an acquisition, bring a new product to market, or choose any one of dozens of similarly important, strategic-level decisions, the key in part is to get all the evidence before allowing yourself to decide.
Forget what you want
The MAP protocol isn't intended to take intuition or gut-level thinking out of the decision-making process entirely. But it is designed to guide decision makers to identify independent qualities in any decision, and evaluate them separately and explicitly, before trying to make an overall decision. Why? Mainly because human beings have natural tendencies to let themselves be guided by irrational factors. Maybe it will be more clear with an example that Kahneman and his colleagues make in their paper. Suppose that a venture capital firm is deciding whether to invest in a startup, and some of the partners have already been seen "an impressive product demo," in this example.
That experience might lead them to "rate the management team's skill favorably," even on aspects that have little to do with product development. The investors risk getting excited about the investment, and then wanting to believe that all the other factors they should consider will also support making an investment. But the key is really to forget about what you want -- and train yourself to isolate and identify what the evidence actually tells you.
Define the assessments
Notably, you can't make decisions on each factor separately until you identify the factors -- and how you'll assess them. Of course, this varies depending on the decision you need to make. But you can probably identify some universal categories. If you're deciding whether to launch a business, you might break the categories down into things like:
Use fact-based, independent assessments
Breaking down the overall decision into assessments is great, but you also want to guard against your implicit biases. One way to do this is to insist as much as possible on fact-based assessments. "People who weigh in on one aspect of a strategic option should not be influenced by one another -- or by other dimensions of the option. Their opinions should be grounded in the evidence available," Kahneman and his colleagues write. Market size might be measurable in dollars, but maybe the quality of your team is harder to put a number on. However, forcing yourself -- or your team -- to measure each area separately, while guarding against undue influence of one factor toward another, is important.
The final 10 percent
Admittedly, the MAP process can seem a bit robotic. And, business leaders sometimes resist it, precisely because it encourages you to push all of the gut-level intuition to the last step. Doing that implies perhaps that decision-makers (and leaders) are therefore interchangeable. But that in turn ignores the crucial step of the decision-making process - what we might call the final 10 percent.
"Unlike algorithmic decision-making, which aims to take subjectivity out of the decision entirely, MAP values intuition, provided that it is informed," he writes. "The holistic judgment of experienced executives is valuable, but it must first be prepared by a profile of mediating assessments." In other words, MAP isn't about never taking the human factor out of decision making. It's instead about holding back on the gut-level, intuitive decision making until after you've eliminated as much uncertainty as possible. Doing that should allow you to make much better decisions than other people do. And in turn, become a better leader.
Content gathered & updated by the Bergen Review Media team.