The Four Villains of Decision Making

ROTMAN Magazine

Our ‘WRAP’ model can help you counteract four common thinking biases.

by Chip Heath and Dan Heath

IF YOU SPEND SOME TIME studying the kinds of decisions people make and the outcomes of those decisions, you’ll find that humanity does not have a particularly impressive track record.  Career choices are often abandoned or regretted; business decisions are frequently flawed; and on the personal front, we’re not doing much better: we don’t save enough for retirement; we let work interfere with our family life; and 88 per cent of New Year’s resolutions are broken.  Why do we have such a hard time making good choices?

The most widely-used decision making process is the pros and-cons list, whereby you mentally or physically list the positive and negative attributes of a particular choice and tally them up.  The advantage of this approach is that it’s deliberative: rather than jump to conclusions, you hunt for both positive and negative factors—pushing your mental spotlight around until you feel ready to make a decision.

But it’s not enough. Research in Psychology over the last 40 years has identified a broad set of biases in our thinking that doom our decision making. If we aspire to make better choices, we must learn how these biases work and how to fight them. This article describes the four most pernicious villains of decision making and suggests some first steps you can take to overcome them.

Villain #1: Narrow Framing

“Any time in life you’re tempted to think, ‘Should I do this OR that?’, instead, ask yourself, ‘Is there a way to do this AND that?’  Surprisingly frequently, it’s feasible to do both things.” These are the words of Steve Cole, the VP of Research and Development at HopeLab, a non-profit that to fights to improve kids’ health using technology. For one major project, Cole and his team wanted to find a design firm that could help them design a portable device capable of measuring the amount of exercise kids were getting.

There were at least seven or eight local design firms capable of doing the work. In a typical contracting situation, HopeLab would have solicited a proposal from each and then given the winner a giant contract. But instead of choosing a winner, Cole decided to run a ‘horse race’: he shrunk down the scope of the work so that it covered only the first step of the project, and then he hired five different firms to work on the first step independently.  To be clear, he wasn’t quintupling his budget — as a non-profit, HopeLab didn’t have unlimited resources. Cole knew that what he’d learn from the first round would make the later rounds more efficient.

With this approach, Cole ensured that he would have multiple design alternatives for the device. He could either pick his favourite or combine the best features of several. Then, in Round 2 of the design, he could weed out any vendors who were unresponsive or ineffective. By taking this non-traditional approach, he was fighting the first villain of decision-making.

Narrow framing is the common tendency we have to define our choices too narrowly, to see them in binary terms. We ask, “Should I break up with my partner or not?” instead of, “What are the ways I could make this relationship better?” Too often, we get stuck in a narrow frame that spotlights one alternative at the expense of all the others. Cole, with his approach, broke out of that trap.

It wasn’t an obvious move; he had to fight for the concept internally. “At first, my colleagues thought I was insane. At the beginning, it costs some money and takes some time. But now everybody here does it. You get to know lots of different things about the industry. You get convergence on some issues, so you know they are right, and you also learn to appreciate what makes the firms different and special. None of this can occur if you’re just talking to one person. And when five firms know that there are four other shops involved, they always bring their best game.”

Notice the contrast with the Pros and Cons approach. Cole could have tallied up the advantages and disadvantages of working with each vendor, and then used that analysis to make a decision.  But that would have reflected narrow framing. Implicitly, he would be assuming that there was one vendor who was uniquely capable of crafting the perfect solution, and that he could identify that vendor on the basis of a proposal.

There’s a more subtle factor involved, too: in meeting with the teams, Cole would have inevitably developed a favourite, a team he ‘clicked’ with. And though intellectually he might realize that the people he likes personally aren’t necessarily the ones who will build the best products, he would be tempted to jigger the Pros and Cons list in their favour. Cole might not even be aware he was doing it, but because Pros and Cons are generated in our heads, it is very easy to bias the factors. We think we are conducting a sober comparison but, in reality, our brains are following orders from our guts.

Villain #2: The Confirmation Bias

Our normal habit in life is to develop a quick belief about a situation and then seek out information that bolsters that belief. This problematic habit, called the confirmation bias, is the second villain of decision-making.

Here’s a typical result from a large literature on the topic: Smokers in the 1960s — back when the medical research on the harms of smoking was less clear — were more likely to express interest in reading an article headlined “Smoking Does Not Lead to Lung Cancer” than one with the headline “Smoking Leads to Lung Cancer.” To see how this could lead to bad decisions, imagine your boss staring at two research studies headlined “Data that Supports What You Think” and “Data that Contradicts What You Think.” Guess which one will get cited at the staff meeting?

Researchers have found this result again and again: when people have the opportunity to collect information from the world, they are more likely to select information that supports their pre-existing attitudes, beliefs and actions. Political partisans seek out media outlets that support their side but will rarely challenge their beliefs by seeking out the other side’s perspective.  Consumers who covet new cars or computers will look for reasons to justify the purchase but won’t be as diligent about finding reasons to postpone it.

The tricky thing about the confirmation bias is that it can look very scientific. After all, we’re collecting data.  Dan Lovallo, a professor and decision-making researcher, has said, “Confirmation bias is probably the single biggest problem in business, because even the most sophisticated people get it wrong. People go out and collect data, and they don’t even realize they’re cooking the books.”

At work and in life, we often pretend that we want the truth when we’re actually seeking reassurance: “Do these jeans make me look fat?” “What did you think of my poem?” These questions do not crave honest answers. Pity the poor contestants who try out to sing on reality TV shows, despite having no discernible ability to carry a tune. When they get harsh feedback from the judges, they look shocked. And you realize: this is the first time in their lives they’ve received honest feedback. Eager for reassurance, they’d locked their spotlights on the praise and support they received from friends and family. Given that affirmation, it’s not hard to see why they’d think they had a chance to become the next American Idol. It was a reasonable conclusion — drawn from a wildly-distorted pool of data.

This is what is slightly terrifying about the confirmation bias: when we want something to be true, we will spotlight the things that support it, and then, when we draw conclusions from those spotlighted scenes, we’ll congratulate ourselves on a reasoned decision. Oops.

In his memoir, Only the Paranoid Survive, Andy Grove recalled a tough dilemma he faced in 1985, as the president of Intel: whether to kill the company’s line of memory chips. Intel’s business had been built on memories. For a time, in fact, the company was the world’s only source of memory, but by the end of the 1970s, a dozen or so competitors had emerged. Meanwhile, a small team at Intel had developed another product, the microprocessor, and in 1981, the team got a big break when IBM chose Intel’s microprocessor to be the ‘brain’ of its new personal computer. Intel’s team scrambled to build the manufacturing capacity they’d need to produce the chips.

At that point, Intel became a company with two products: memory and microprocessors. Memory was still the dominant source of revenue, but in the early 1980s, the company’s competitive position in the memory business came under threat from Japanese companies. “People who came back from visits to Japan told scary stories,” said Grove. It was reported that one Japanese company was designing multiple generations of memory all at once: the 16K people were on one floor, the 64K people were a floor above, and the 256K team was above them.

Intel’s customers began to rave about the quality of the Japanese memories. “The quality levels attributed to Japanese memories were beyond what we thought possible,” said Grove. “Our first reaction was denial: this had to be wrong. As people often do in this kind of situation, we vigorously attacked the data. Only when we confirmed for ourselves that the claims were roughly right did we start to go to work on the quality of our product. We were clearly behind.”

Between 1978 and 1988, the market share held by Japanese companies doubled, from 30 to 60 per cent. A debate raged inside Intel about how to respond to the Japanese competition.  One camp of leaders wanted to leapfrog the Japanese in manufacturing.  They proposed building a giant new factory to make memory chips. Another camp wanted to bet on an avant-garde new technology that they thought the Japanese couldn’t match. A third camp wanted to double-down on the company’s strategy of serving specialty markets.

As the debate continued, the company began losing more and more money. The microprocessor business was growing rapidly, but Intel’s failures in memory were becoming a drag on profits.  Grove summarized the year 1984 by saying, “It was a grim and frustrating year. During that time, we worked hard without a clear notion of how things were ever going to get better. We had lost our bearings.”

In the middle of 1985, after more months of fruitless debate, Grove was discussing the memory quandary in his office with Intel’s chairman and CEO, Gordon Moore. They were both fatigued by the internal deliberations. Then Grove had an inspiration:

I looked out the window at the Ferris Wheel of the Great America amusement park revolving in the distance, then I turned back to Gordon and I asked, ‘If we got kicked out and the board brought in a new CEO, what do you think he would do?’ Gordon answered without hesitation, ‘He would get us out of memories.’ I stared at him, numb, then said, ‘Why shouldn’t you and I walk out the door, come back in, and do it ourselves?’

This was the moment of clarity. From the perspective of an outsider, someone not encumbered by the historical legacy and the political infighting, shutting down the memory business was the obvious thing to do. The switch in perspectives — “what would our successors do?” — helped Moore and Grove see the big picture clearly.

Of course, abandoning memory wasn’t easy. Many of Grove’s colleagues were furiously opposed to the idea. Some held that memories were the seedbed of Intel’s technology expertise, and that without them, other areas of research were likely to wither. Others insisted that Intel’s sales force could not get customers’ attention without selling a full range of products — memories as well as microprocessors.

After much gnashing of teeth, Grove insisted that the sales force tell their customers that Intel would no longer be carrying memory products. The customers’ reaction was, essentially, a big yawn. One said, “It sure took you a long time.” Since that decision, in 1985, Intel has dominated the microprocessor market. If, on the day of Grove’s insight, you had invested $1,000 in Intel, by 2012 your investment would have been worth $47,000 (compared with $7,600 for the S&P 500, a composite of other big companies). It seems safe to say that he made the right decision.

Grove’s story reveals a flaw in the way many experts think about decisions. If you review the research literature, you’ll find that many decision-making models are basically glorified spreadsheets. If you are shopping for an apartment, for instance, you might be advised to list the eight apartments you found, rank them on a number of key factors (cost, location, size, etc.), assign a weighting that reflects the importance of each factor (cost is more important than size), and then do the math to find the answer (Um, move back in with Mom and Dad.)

There’s one critical ingredient missing from this kind of analysis: Emotion. Grove’s decision wasn’t difficult because he lacked options or information, it was difficult because he felt conflicted. The short-term pressures and political wrangling clouded his mind and obscured the long-term need to exit the memory business.

Villain #3: Short-Term Emotion

This brings us to the third villain of decision-making: short-term emotion. When we’ve got a difficult decision to make, our feelings churn. We replay the same arguments in our head.  We agonize about our circumstances. We change our minds from day to day. If our decision were represented on a spreadsheet, none of the numbers would be changing — there’s no new information being added — but it doesn’t feel that way in our heads. We have kicked up so much dust that we can’t see the way forward. In these moments, we need an infusion of perspective.

Ben Franklin was aware of the effects of temporary emotion.  His ‘moral algebra’ wisely suggests that people add to their Pros and Cons list over several days, giving people a chance to add factors as they grow more or less excited about a particular idea. Still, though, to compare options rigorously is not synonymous with seeing the bigger picture. No doubt Andy Grove had been compiling his Pros and Cons list about whether to exit the memory business for many years. But the analysis left him paralyzed, and it took a quick dose of detachment — seeing things from the perspective of his successor — to break the paralysis.

Villain #4: Overconfidence

Our search for the final villain of decision-making takes us back to January 1, 1962, when a young four-man rock ‘n’ roll group named the Beatles was invited to audition in London for one of the two major British record labels, Decca Records. “We were all excited,” said John Lennon. “It was Decca.” During an hour-long audition, they played different songs, mostly covers. The Beatles and their manager, Brian Epstein, were hopeful they’d get a contract, and they waited anxiously for a response. Eventually they received the verdict: Decca had decided to pass. In a

letter to Epstein, Dick Rowe, a prominent talent scout at Decca Records, wrote, “We don’t like your boys’ sound. Groups are out; four-piece groups with guitars, particularly, are finished.”

As Dick Rowe would soon learn, the fourth villain of decision making is overconfidence. People think they know more than they do about how the future will unfold. Recall that Andy Grove’s colleagues had dire predictions of what would happen if Intel stopped making memory chips. We will lose the seedbed of our R&D. Our sales force can’t succeed without a full line of products. History proves that they were wrong: Intel’s R&D and sales stayed strong. But what’s interesting is that, at the time they made these proclamations, they didn’t feel uncertain. They weren’t hedging their remarks by saying, “It’s possible that…” or “I just worry that this could happen someday…” They knew they were right. They just knew it.

Elsewhere, one study showed that when doctors reckoned themselves “completely certain” about a diagnosis, they were wrong 40 per cent of the time. And in another, when a group of students made estimates that they believed had only a one percent chance of being wrong, they were actually wrong 27 percent of the time. We have too much confidence in our own predictions because when we make guesses about the future, we shine our spotlights on information that is close at hand, and then we draw conclusions from that information. Overconfidence is an insidious villain.

Counteracting Our Biases

If you think about a normal decision process, it usually proceeds in four steps:

1. You encounter a choice;

2. You analyze your options;

3. You make a choice;

4. Then you live with it.

What we’ve seen is that there is a villain that afflicts each of these stages:

• You encounter a choice: but narrow framing makes you miss options;

• You analyze your options: but the confirmation bias leads you to gather self-serving info;

• You make a choice: but short-term emotion will often tempt you to make the wrong one;

• Then you live with it: but you’ll often be overconfident about how the future will unfold.

We can’t deactivate our biases, but with the right discipline, we can counteract them. The nature of each villain actually suggests a strategy for defeating it.

1. You encounter a choice; but narrow framing makes you miss options.

So…WIDEN Your Options.

2. You analyze your options; but the confirmation bias leads you to gather self-serving info.

So...REALITY-TEST Your Assumptions.

3. You make a choice; but short-term emotion will often tempt you to make the wrong one.

So...ATTAIN Distance Before Deciding.

4. Then you live with it; but you’ll often be overconfident about how the future will unfold.

So…PREPARE to be Wrong.

The four steps in our ‘WRAP model’ are sequential — in general, you can follow them in order — but not rigidly so. For instance, a long-awaited promotion probably won’t require much ‘Widening’ or ‘Distance’ before you accept and pop the champagne.

In closing

At its core, the WRAP model urges you to switch from ‘autospotlight’ to ‘manual spotlight’. Rather than make choices based on what naturally comes to your attention — visceral emotions, self-serving information, overconfident predictions, and so on — you deliberately illuminate more strategic spots. You sweep your light over a broader landscape and point it into hidden corners.

Our book chronicles several heroes who have successfully foiled the villains of decision making. For instance, most companies face frequent disappointments in their hiring process, but we found a few that have tweaked their process in ways that strongly reduce the failure rate. We interviewed a graduate student who survived a life-threatening illness, in part by adopting a better process to collect information from his physicians. And we discovered a simple change in process that made the strategic decisions of a technology firm six times more likely to be rated as ‘very successful’ ten years later. All of these cases suggest that savvy organizations and individuals can overcome the villains by adopting the right process.

Our decisions will never be perfect, but they can be better, bolder and wiser. The right process can steer us toward the right choice. And the right choice, at the right moment, can make all the difference.

Chip Heath is the Thrive Foundation for Youth Professor of Organizational Behaviour at the Stanford Graduate School of Business. He is the co-author, with his brother Dan, of three books, most recently, Decisive: How to Make Better Decisions in Life and Work (Crown Business, 2013).

Dan Heath is a Senior Fellow at Duke University’s CASE center, which supports social entrepreneurs. Excerpted from Decisive.  Copyright © 2013 Chip and Dan Heath. Published by Random House Canada, an imprint of the Knopf Random Canada Publishing Group, which is a division of Random House of Canada Limited. Reproduced by arrangement with the Publisher.  All rights reserved.