Strategies & Analysis
by Phil Phillips, PhD
Contributing Editor
phillips@chemarkconsulting.net
Whether in business or just in everyday life, we make deci- sions that are right as well as
wrong . . . . sometimes. We also make a
decision but at the wrong time, as well.
Whether we’re Presidents or floor su-
pervisors we commit needless mistakes.
Some of them are:
• Underestimating how long it will
take to complete a task
• Disregard or discount information
that reveals a flaw in our planning
• Fail to take advantage of company
payback that are in our best interests
To propose rewiring our brains and
selectively unbutton the patterns that
lead to such mistakes would be very dif-
ficult. There is another choice. . . . modify
the setting in which decisions are made
so that more probable decisions lead to
solid results.
Business leaders can accomplish this
by acting as designers. The approach involves five steps:
1. Discover the methodical errors in
decision making that can take place
2. Settle on whether behavior issues
are at the center of the bad decisions in question
3. Identify the exact fundamental causes
4.Revamp the decision-making
framework to alleviate the negative
impacts of biases and insufficient
incentive
5.Meticulously examination the
solution.
Discover the methodical
errors in decision making
that can take place
Define the problem . . . not every business
problem should be addressed using be-
havioral economics apparatus. Therefore,
prior to applying them, managers should
decide whether:
Human behavior is at the heart of the
problem: Asking a non-scientist to de-
velop a chemical formula, for example.
Or, asking people to act in a ways that
is divergent to their own best wellbeing.
Settle on whether behavior
issues are at the center
of the bad decisions in
question
There are two main causes of poor decision making: inadequate incentive and
cognitive biases. To determine which is
causing the challenging behavior, companies should ask two questions:
1. Is the problem caused by people’s
failure to take any action at all? If
so, the cause is lack of motivation/
incentive.
2. Are people taking action but in a
way that introduces systematic errors into the decision-making procedure? If so, the problem is rooted
in cognitive biases.
Identify the exact
fundamental causes
Once management has ascertained the
primary source of an matter, compa-
nies can begin to design solutions. One
such action is to utilize first choice ar-
chitecture concepts. The objective here
is to improve people’s decisions by
carefully structuring how information
and options are presented to them. In
this way, organizations can bump em-
ployees in a certain direction without
taking away their freedom to make de-
cisions for themselves.
Adjustments to the choice environ-
ment can drive big improvements at low
or even no cost. Included would be:
• Varying the order in which alterna-
tives are presented.
•Varying the wording used to de-
scribe them
•Adjusting the procedure by which
they are selected
• Carefully choosing the defaults
Revamp the decision-making framework to
alleviate the negative
impacts of biases and
insufficient incentive
The semi-final step is to thoroughly
test the proposed solution to determine whether it will accomplish its
objectives. Obviously, testing will help
management avoid expensive mistakes
and provide insights that lead to even
improved solutions. Tests have three
key elements:
1. Identifies the preferred result
2. Identifies possible solutions and focuses on one
3. Introduces the change in some areas
of the organization . . . . the “
treatment group” and not in the “control
group”
Meticulously examination
the solution.
Divide teams into two groups . . . .
Randomization helps assure that any differences in outcome between the two
groups can be attributed to the change. CW
Short Primer: Decisions,
What to Do to Make the Best Ones?
Business leaders can
modify the setting which
decisions are made so that
more probable decisions
lead to solid results.
