In the last 15 years a lot of insights have been gained about the human brain. Behavourial economics and the impact on management thrive on these insights.
In a new book, Think Again: Why good Leaders Make Bad Decisions and How to Keep it From Happening to You (McGraw-Hill 2009), authors Finkelstein, Whitehead, and Campbell, suggest that for many of us the fault lies not so much in our own errors of judgment, but rather in the brain’s processes that help create these errors of judgment.
They quote many famous cases (including the US auto makers) of managers and leaders who have made poor decisions.
They attribute these to the brain’s agility in linking the current situation to previous misleading experiences; its ability to relate current situations to our pre-judgments of similar situations; its inability to separate the situation from personal self-interests; and a tendency to draw an inappropriate emotional link between current stakeholders and those for whom we have strong personal feelings.
The authors suggest some rules to help overcome possible decision-making errors.
These are not the typical governance rules. Rather, they are tailored defences against the particular red flags in a given situation.
The authors advise leaders to design, for each important decision, a decision process based on an understanding of the red flags that are present at that moment.
So, perhaps the answer for improving the decision making mindset of leaders and managers is twofold:
first, they need to identify the needs, concerns and interests of the other stakeholders; and second, make sure each decision making situation is assessed in terms of the possibility of one or more of the four “red flags”.
Source and for further reading Can too much success lead to failure?.