Four ways to limit your irrationality

Business context: Guiding decisions

“Our irrational behaviors are neither random nor senseless – they are systematic and predictable. We all make the same types of mistakes over and over, because of the basic wiring of our brains”

Dan Ariely, Behavioural Economics Professor

You are predictably irrational – and that is good news. Because if you can predict it, you can fight it. You now know that process is 6 times more important than analysis in taking solid decisions, but behavioural economics shows that the context in which you make your decisions is also more important than the content.

The classic context example is the three sizes of coke cups in cinemas: Almost everybody buys the middle one. The large is a waste and small one kicks off your loss aversion. So why does Coca Cola insist on three sizes? Because they want you to go through the process of picking one of the three – they do NOT want you to go through the process of picking a coke or nothing at all…

That makes sense for consumer purchases, but what about business decisions – what context are we talking about here? There are four major contextual areas to consider all designed to minimize the pressure on your limited cognitive ability – your system 2:

1) What is the business context? If you are making a corporate strategy, it would be the key industry trends and competitive forces. If you are making any other decision, it would be in the context of the core guiding decisions of purpose/values and objectives/strategy. This helps reduce the complexity of any later decision, as you have a scaffold to lean against. For example, I recently worked with professional services firm, where once the strategy was clear it was surprisingly easy to make business divestments, capital allocation, talent management etc.

2) What is the temporal context? Every decision fit into an operating system of core business processes and decision fora throughout the year whether these are with external or internal parties and focus on strategic business or people decisions. This helps channel decisions into specific flows, so they come at the right time and the right order, which in turn ensures alignment among players and bite-sized decisions. For example, I worked with a logistics company with several business units, functions and geographies, where this lined up all decisions into one coherent organizational move.

3) What is the people context? Every decision requires someone to give input, someone to do the analysis, someone to decide and someone to execute. So there is a need for people to play different roles – the right people in the right roles with the right competencies – and you need to understand the power and politics of these critical stakeholders. Getting your ducks in a row will remove clutter and avoid delays in decision making. For example, I worked with a consumer products brand, where this clear guidance of roles and right people made the difference between success and failure in complex strategic programs.

4) What is the decision context? Some decisions are high impact and difficulty – they clearly deserve a strategic process. Other decisions are low impact and difficulty, where the right response is more of an operational decision process – and then there are those in between. Below are examples of the decision approaches I have used in countless businesses and projects – often together because the solution for small problems fit into the mid sized like the mid sized fit into the large – a bit like Russian Matryoshka dolls (avid readers will note, that the classic problem solving method has been revived for midsized tactical problems:)).

Decision context: Problem solving

So how do you make decisions – and are you structuring your context for maximum cognitive application?

Contact me at brian@behaviouralstrategygroup.com or +45-23103206 for more inspiration.

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