MANAGEMENT SPECIAL...................... Defensive Decisions

 Defensive Decisions

Gerd Gigerenzer, Speaker, Author, Consultant Why companies need to have a positive error culture not a negative error culture

You need to take an important decision. You've got reams of data in front of you and at the end of a long brainstorming session the team has decided on the most logical approach. Somehow you aren't convinced. There's a niggling feeling that you shouldn't be doing it, but since you can't find a way to justify it, you decide to ignore it. Six months down the line, that doubt is proven to be right. Most managers find themselves in this situation when they have a goodor bad-feeling about something, but because they don't have the data to back it up, decide to go with the seemingly logical option.

Gerd Gigerenzer, Director at the Max Planck Institute for Human Development, calls this defensive decision making. “A manager wants to do something he thinks is in the best interest of the company but he cant explain it if it goes wrong and so he goes for the second best option where it will not be his responsibility if things go wrong,“ he says. “Defensive decisions are not a sign of strong leadership and can hurt the company,“ says Gigerenzer, whose newest book, Risk Savvy: How to Make Good Decisions, deals with the perils of decision making and relying too much on experts. A former professor of psychology at the University of Chicago, Gigernezer is an expert on the use of heuristics and bounded rationalism in decision making and the author of Calculated Risks: How To Know When Numbers Deceive You, and Gut Feelings: The Intelligence of the Unconscious.

Studies have shown that more than half the decisions taken by senior executives after looking at all evidence have been based on their gut. The problem is that often when people decide to follow their gut, they'll do one of two things.
Either have a trusted aide look for reasons to justify your decision after you've arrived at it, or hire a consultant to do this. “Both of these are expensive,“ says Gigerenzer. “You lose a lot of time trying to rationalise a gut decision because you fear to take responsibility. Instead of questioning your instinct, it's better to trust it. But for this to happen, organisations need to have a positive error culture. Expect that errors will occur and find measures so others can learn from it and so it won't happen again.“

Most companies have a negative error culture where you either hide the mistake and pretend it didn't happen or blame somebody. The one exception is in family run businesses. Lufthansa has a positive cockpit error culture which makes it open to the risk of a plane crash and take adequate safety measures to circumvent it, which in turn makes it a safer airline. On the other hand, hospitals have a negative error culture, practising defensive medicine with errors hidden for the fear of litigation.
That's why you risk going back with infections you never had to start with.
“It's essential to take risks. You need to be risk savvy and risk literate. You need to understand statistical thinking, the rule of thumb and third and the psychol ogy of risk,“ says Gigerenzer.

Heuristics, or experience based problem solving techniques, are useful when dealing with uncertainties. For instance gaze heuristics involves focusing only on a few pieces of information and not all the knowledge at hand. It explains why you often find experts looking for less information than novices when trying to take a decision. “If the risks are known then good decisions require logic and statistical thinking. However, if there is uncertainty or unknown risks, then you need intuition and smart rules of thumb,“ says Gigerenzer. Intuition is nothing but the unconscious use of heuristics. According to him, an intuition or gut feeling is not clairvoyance or a sixth sense, rather a judgement that appears quickly for reasons not entirely clear to you and is strong enough to make you want to act upon it. This has its basis in the information that is subconsciously stored in the brain based on our past experiences. He laments the fact that heuristics is often called the reason why humans are prone to making mistakes, rather than recognising it as a tool to take better decisions.

The way to fix this is to become more risk literate. In the previous century, being literate meant being able to read and write, but now it's all about being risk literate, specifically health, financial and digital literacy. He advocates that schools start teaching children how to be risk literate as this can have important long term implications on their physical and financial health. It's early days, but there are a few schools that have started doing this which gives him hope that the future generations will be more literate than ours is.

 5 RISK IS GOOD, BUT YOU NEED TO BE RISK LITERATE

4 DON'T BE IMPULSIVE IN DATA-RICH SITUATIONS WHERE YOU SHOULD BE THOUGHTFUL

3 DON'T BE THOUGHTFUL IN DATA-POOR SITUATIONS WHERE YOU SHOULD BE INTUITIVE

2 BUILD AN ORGANIZATIONAL CULTURE THAT VALUES RISK TAKING

1 HEURISTICS AND STATISTICS CAN BE USED TOGETHER TO TAKE BETTER DECISIONS

by Priyanka Sangani CDET140627