Nobel Laureate gives important decision-making tips
Posted 4/23/2013
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by Jim Garamone
American Forces Press Service
4/23/2013 - WASHINGTON (AFPS) -- Defense Department personnel pride themselves on their decision-making ability, but Nobel laureate Daniel Kahneman believes there are ways to systematically improve and help remove biases from the process.
Kahneman presented his opinions during the "New Ideas @ OSD" seminar in the Pentagon this morning. Former Navy Secretary Richard Danzig moderated the discussion.
Defense leaders literally make life-or-death decisions. They decide how to spend billions of dollars of taxpayer money. They decide how best to approach leaders in other countries and how to best implement programs and policies.
Kahneman received the Nobel Prize in Economics in 2002 and wrote the New York Times bestseller "Thinking, Fast and Slow." He said there are three elements in making decisions: options, judgments and evidence. The judgments and evidence feed into providing options, which constitute the crux of decision making.
Stressing the need for quality control in the process, Kahneman urged that defense leaders be aware of the role their biases play.
"Institutions in general can be viewed as factories that produce decisions," he said. "When there is a production line, there is a need for something called quality control."
He suggested a quality control checklist for decision making. "This is not a checklist of relevant facts that pertain to the decision," Kahneman said. "It is a checklist of the likely errors that can be made in the process of deciding." The checklist should provide an evaluation of whether the decision is being made well, he said. The list should include the likely biases and mistakes that could be entering into the decision-making process.
He suggested this checklist could move along even as a decision is being made. There is no need to await the outcome.
The process entails uncertainty, and a decision can be viewed as a gamble, the professor said. "There is no perfect corollary between the quality of decisions and the quality of the outcome," he said.
In general, there is a very strong tendency for people to evaluate decision making by outcome and not by process, Kahneman said. "We cannot prevent ourselves from seeing, 'If something ended well, it was done well, and if something ended badly, somebody must have fouled up,'" he said.
He called this the "hindsight bias."
"Our model of the world is changed by the outcome," he said. "It is almost impossible to control."
The hindsight bias is unkind to decision makers, the professor said. "Their failures tend to look stupid, and their successes tend to look obvious," he said. "We cannot foretell the future, but we can almost always explain the past."
This leads to another bias he called the "outcome bias." This means decision makers are rewarded or punished by the outcome of their decisions, and not by the quality of the process.
"Knowing about the existence of these biases ... will do absolutely nothing for you," he said. "You will not be able to avoid these errors." But people can correct for these biases, he added.
"The only way to control for these biases is to identify the circumstances under which it is likely to occur and to make a conscious effort to correct the judgment," he said.
Another bias that Kahneman said is common is for people to exaggerate their chances for success. "Especially if they have a plan, they tend to be really optimistic about the chances of their plan succeeding," he said. "They tend to have an illusion of control. These are very deep-seated illusions."
Officials need to control for this by looking at other, similar plans and gauging the similarities from those, he said. "They will find sometimes that their conclusions are not even in the ballpark," he added.
Kahneman discussed decision makers holding a "pre-mortem" for their decisions. In this, the leader tells those helping with the decision to imagine the decision went horribly wrong, and that it is now a year later and they have to discuss why it failed.
In making a decision, organizations "increasingly get locked into that decision," he said, and dissent becomes very difficult. Organizations love optimists, Kahneman noted, while pessimists are almost seen as disloyal. A pre-mortem helps to find flaws in the plan he said.
"I believe you can improve decision making if you are conscious of errors, and in an organization that does things systematically and does thing slowly, there is an opportunity to improve decision making," Kahneman said.
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