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You can't make a good decision without first identifying biases

Ian Dyason. 28 April 2021

Last night I had a discussion with friends and colleagues. One particular topic of discussion fell onto strategic thinking. This was posed to me by one of our certified trainers as we discussed the B2C roll out of our programmes (we are predominantly a B2B training provider). His feedback to me was in relation to a very fundamental aspect of strategic decision-making - what makes a situation strategic. He mentioned that while I had explained this in my programme, many people still cannot see the forest for the trees, and are unable to grasp the concept. They are also afraid to raise this up during the workshop for fear of looking the fool. Hence, most of them plod along without much understanding, and this certainly puts paid on the results of the course. He challenged me to create something even clearer than what is being done in our programme.

Three Conditions

Currently, to understand if a situation is strategic or not, we apply three questions:

  1. Does it impact more than one person or one group of persons?

  2. Does it have an impact long into the future?

  3. Does it have a high opportunity cost?

If the situation meets ALL of these conditions, we then say that the situation is strategic and we then apply our strategic thinking process to address the situation.

Why these conditions?

when a situation is strategic, it should be one that (1) impacts more than one person or group of persons, AND (2) impacts well into the future, AND (3) has a high opportunity cost.

Well, if you are simply solving a question or addressing a situation that impacts only you, then you have the power in your hands to adjust the outcome of the decision. This also applies to a group of people. If the decision is made by a group of people and it impacts only that group, then that group can react to any positive or negative outcomes of that decision without much problem. But once the decision impacts more than a person or one group of people, then it becomes more strategic, since we have to think about others and how they will be impacted by an adverse decision. The more people our decision impacts, the more strategic it becomes. This means that the more we need to apply strategic thinking to address the issue.

But if it does impact many people, does that mean it is strategic? Not necessarily. Because if the impact is only for a very short, limited time, it may still not be very strategic. For example, you are thinking of organising a mass run this coming December and you are not sure that covid will have been eradicated by then, should you go ahead? As you can see, the situation impacts many people (or groups of people), but its impact is very short-lived. It may agonise you from now until December, but once you cross that date, it becomes a non-event (the decision, I mean). So while the decision is important between now until December, it is not strategic because the impact of this decision is short-lived. But, if you have to answer the question of whether to set up a distributed network of sporting activities across the whole of Singapore to impact healthy lifestyle and tourism, this becomes a more strategic decision since it impacts all of Singapore and different organisations, and the impact of this decision goes well into the future! But, how strategic is this decision? What is making it so difficult? The final consideration will answer us.

The minute you understand what you are foregoing with this choice, you will start looking at different rates of return, and the cost of the decision - not just in terms of resources, but in lost opportunity

What if you had all the resources in the world - land, labour and capital - to create that distributed network of sporting activities, AND everything else you'd want to do? Would you hesitate on this decision? Probably not. You would just go ahead and do it because it is a good decision, and you can still do whatever else you want to. However, no one has unlimited resources, and so there is a need to make a strategic decision. This therefore brings us to the next consideration - the opportunity cost. What ELSE can you do with the resources that this decision requires and why are you choosing this over those? The minute you understand what you are foregoing with this choice, you will start looking at different rates of return, and the cost of the decision - not just in terms of resources, but in lost opportunity. Hence, when the opportunity cost is high, it will certainly require one to be more strategic in their thinking.

Hence, when a situation is strategic, it should be one that (1) impacts more than one person or group of persons, AND (2) impacts well into the future, AND (3) has a high opportunity cost. The minute these three conditions come together, we know we are onto a strategic decision and need to apply the right process to get at the right decision.

Why is this so difficult?

So the process of establishing whether a decision is strategic or not is straight-forward and well established. Yet, why is it so difficult for one to see if one's decision is strategic or not? And here we are talking about Type 1 and Type 2 errors. A Type 1 error is rejecting what one should be accepting; and a Type 2 error is accepting what one should be rejecting. So in this case, a Type 1 error is thinking that a situation is not strategic when it actually is; and a Type 2 error is thinking that a situation is strategic when it is it not. The Type 1 error is more dangerous because if you reject your strategic decision and apply simplistic thinking to solving it, you might end up making a very serious mistake. For Type 2 errors, you will only end up wasting time having realised that you could simply have made the decision and gotten on with your life.

But regardless of the impact, why do people make such errors in the first place? Herein lie the biases that impact our thinking. There are many blind spots that influence our considerations. Here are a few:

Affect heuristic. This is where you are affected by your emotions. Many of us prefer one solution over another and this causes us to see things in a binary like-dislike basis. We then fit the narrative to meet our preferences. And that brings us to...

Confirmation bias. This is where we look out for information that confirms our preferences (biases) and discounts every other information that disconfirms the preferences. All it takes is ONE confirmation against a multitude of disconfirmations!

Self-Selection bias. Then there is this bias that works so well with confirmation bias, where we select the pool of information that will likely confirm our biases; like asking those in our mailing list to confirm that they like our content.

False causality bias. And this leads us to false causality. Many of us fail to see that a correlation is not a causality. Just because it rains every time I put out the clothes to dry does not mean that my clothes-drying actions caused the rain. But many people make this simplistic conclusion, thereby leading them to Type 1 or Type 2 errors.

Association bias. False causality is largely driven by association. If we associate one thing with another - for example how I make decisions with the outcomes I receive, this will reinforce the self-selection, false causality, confirmation outcome of our thinking.

Illusion of control. And this is a big favourite of many strategic decision-makers; they think they are in control of the situation; that their decision will result in the outcome they predict because they believe they are in control when in fact they are neglecting...

Base-rate Neglect. Base rates - this is where the law of large numbers come in. It is anecdotally understood that less than 20% of new businesses survive past 5 years, and of them, another 20% will survive past 10 years. This means just 4% of businesses starting out today will be here in 10 years' time. So what makes you think that YOUR entrepreneurship startup will succeed and give you retirement income?

Fundamental attribution error. Of course, this overconfidence can come down to fundamental attribution error, the bias that thinks that a lot of it comes down to one's knowledge, experience, skill or some other fundamental attribution. Most issues are not so simple.

Availability bias. And sometimes it is not the fundamental attribution but availability bias at work. In a way it is the "what you see is what you get" bias. If we don't see it, it means it is not there; or vice versa!

Authority bias. And finally there is also the authority bias, a huge impact on decision making. If there is someone in authority deciding that the decision is not strategic, everyone else just falls in line and agrees without so much of an afterthought, unwittingly opening up Type 1 and Type 2 errors.

These are just 10 of the different cognitive biases that impact the way we think and the way we make our decisions. There are many more that impact us, and hence many other reasons why an individual would commit Type 1 or Type 2 errors.

Many people want to make the right decision every time, but they are (1) blind to the biases that impact them, and, worse, (2) they take offence when these are pointed out to them.

So what do we do about it?

Many people want to make the right decision every time, but they are (1) blind to the biases that impact them, and, worse, (2) they take offence when these are pointed out to them. There was once this person who asked me why he was still earning the same salary after more than 20 years' working experience. When I said that it could be because that was all the employers saw was his value to them, he took offence. He said that it was more like he was exploited. When I asked whether he asked for a salary increase, he said it was up to the employer to see his worth and pay him that amount. In the end, he kept on resigning and then jumped right back into the same problem with a new employment. Can you see the affect heuristic, the false causality bias, the association bias and the fundamental attribution error all rolled into this one person? So even if these were pointed out to the person, he would be blind to his contribution to the problem since he takes offence to the real reason why he keeps earning the same salary despite having more work experience.

So what can we do about it?

Before we can even get down to solving a strategic "problem", we must first open each decision-maker's mind to the possible biases affecting them, because, to be sure, there are many. This means that we must work out ways to share these biases with them, and then get them to study their own situation, identifying what biases are affecting them. It is only after they realise what is impacting their own thinking, would it be possible to open up the discussion of the conditions of whether a decision was strategic, and from there, apply the right decision making tools to get at the right decision. Every time.

In the end, we must teach everyone that they will have to identify their own decision biases before trying to making the right decision.

Time for us to tweak our decision-making program....


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