When Bad Decisions Get Great Results (...and vice versa)
What is the best decision you ever made? Think about it for just a minute. Was it your selection of a spouse? A certain stock purchase? Moving to a new house? Changing careers?
Now consider this: How do you know it was a great decision?
Although you were happy with the result, maybe you could have had an even better result with a different decision. Or maybe you just got lucky.
More often than not we will assess a decision based on the outcome. Did it turn out well or rotten? Did it make us happy? Sad? Richer? Poorer? Fulfilled? Frustrated?
Psychologists call this “outcome bias” and it’s a shortcut we all frequently take - judging the quality of a single decision on the result. It is not only inaccurate but can be enormously costly as well.
Life is... a crap shoot
Every decision we make is a gamble. It is impossible to know precisely how a decision will turn out because 1) we are not in control of all contributing factors, and 2) we don’t have access to all of the pertinent information.
But judging the quality of a decision by how it turns out is easy. It’s a quick way to connect the dots and form a conclusion. The lizard brain loves quick and easy so the impulse to do that is strong.
Strong but wrong.
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Calculating the probabilities
According to an Accenture Strategy Survey, 7 out of 10 business executives make the mistake of judging the quality of a strategic decision by the outcome achieved.
Likewise, in the sports world coaches are often judged by the result of one decision that produced a bad result at a crucial time, even if the probability for success was high. Remember, a decision with a 70% probability for success will still fare poorly 30% of the time.
In sports as well as business, uncontrollable factors and randomness play a bigger factor than we want to believe. A bad bounce or an unforeseeable market downturn could be the real culprit.
The best we can do is employ a sound decision process that utilizes as much relevant information as possible and has the highest probability of success given what is known. Then we roll the dice, cross our fingers, and hope for the best.
Another problem with outcome bias is the pressure on leadership to respond to a poor outcome. The team/business owner feels the need to do something – anything - in response to the bad outcome. Firing the decision maker has good optics – it appears to be a decisive and swift fix to the problem. However, that solution may be unfair and actually produce worse results in the future.
A better way
How, then, do we determine if a decision was good if we don’t base it on the outcome?
After the outcome of a decision has been realized, good or bad, perform a “decision quality review.”
- What information did we use to inform the decision?
- What pertinent information was available that we did or did not use?
- What factors contributed to the outcome? Were they knowable or controllable?
- Was there a better process that we could have followed to make the decision?
- Did we utilize all of the available resources?
- Was the decision hurried or was sufficient time allowed for the process?
Additionally, we must be conscious of avoiding the temptation to base decision judgment on a single outcome. A sample size of one is not enough data to make an accurate assessment.
Good decision making and review processes will lead to a higher percentage of better outcomes in the long run, even though individual outcomes will not all turn out as we hoped.
As Robert Rubin said in his 2001 Harvard commencement address, “More thoughtful decision-making will lead to better overall results, and more thoughtful decision-making can be encouraged by evaluating decisions on how well they were made rather than on outcome.”
Think well and be well.
- Steve Haffner