Sound Strategy: Think about “how we decide how we decide” to avoid extreme outcomes

Sound Strategy: Think about “how we decide how we decide” to avoid extreme outcomes

September 7th, 2023

We’ve seen a lot of discussion around our region lately about how decisions are made and ultimately whether the final decisions are in fact the right ones.

Housing, for example, or Medicaid expansion, or the criminal justice system, or deciding what to post on Facebook, or even whether or not to go in the ocean when its rough.

In context, for long periods of American history decision models have long assumed decision-makers to be rational actors engaged in making smart decisions in the long-term.

More recently, however, there has been an explosion of science around the idea of behavioral finance and behavioral economics that suggest, in fact, that the opposite is in fact true.

In our humanity, we make highly emotional decisions based on a range of inherent bias geared mainly for short-term gains. That’s not the problem, though. The challenge is to be aware of the bias and account for them in our decisions.

In other words, let’s spend a moment thinking about “how we decide how we decide”. That’s not a typo.

How well do we understand our behavioral decision-making and can we, with strategy in mind, improve it? Let’s begin with an expert.

Cass Sunstein, a Harvard law professor and one of the most referenced legal scholars in history, mentions three specific kinds of bias that inform our daily decisions.

First, there is a bias for hearing the truth – we tend to believe what we hear.

Second, a bias for confirmation – we tend to weight more heavily things we hear or see that confirm our existing belief systems (consider partisan-driven news networks).

Third, and more recently, we display an emerging bias for desirability – meaning we tend to overweight things we find pleasing even at the expense of truth or even confirmation bias.

Now that’s a mouthful, but think for a moment about those three kinds of biases and then consider the recent three ocean swimming deaths in three days despite recommendations to not go swimming in the ocean.

Now, here’s the profound application of those kinds of bias–Professor Sunstein highlights data that suggests, in a law example, that three Democratically-appointed judges will arrive at a more extreme outcome than two Democratically-appointed judges and a Republican one (the parties are interchangeable).

That’s an amazing conclusion in light of, with three judges, the two similar votes still control the outcome. In reality, the judges moderate outcomes in light of a diversity of opinion.

The same holds true, according to financial author Barry Ritholtz, for long-term investments portfolio. Extreme outcomes can in fact be intentionally moderated.

Here’s the point. People, when in groups that share the same idea, tend to arrive at more extreme outcomes than when they act alone.

Think for a moment about the applications of that idea. Whether in the private sector, government, or even education.

That’s why, even this week, we see local examples of this idea such as our elected district attorney warning against the dangers of social media.

To the point, social media has a powerful ability to shape our conscious and unconscious bias in a way that sharpens our own echo chambers (think back to those three biases for a moment).

It’s behavioral science that points out that these echo chambers produce more extreme thinking than would otherwise be possible.

We see this in other places too. Boards and commissions, for example, that represent one ideology.

We tend, recently, to use things like “DEI” as a proxy for cognitive diversity, but it’s the trend of lone or extreme outcomes that are the real challenge.

Now admittedly this is all a little academic, but there is a real-world takeaway emerging here: The risks of extreme outcomes can be accounted for if we think about “how we decide how we decide”.

Beware echo chambers, for example, either in-person or online, as we think about building our decision process.

They’re pleasing, knowing our bias, but they are a very real bias that endangers, perhaps now more than ever, the long-term outcomes we are in search of in our day-to-day efforts.

Great strategy, then, perhaps might paraphrase the noted thinker Sun Tzu in saying that “if we know the issue and we know ourselves, our intent will become a reality.”

WOBX Publisher Clark Twiddy is the author of Outer Banks Visionaries:  Building North Carolina’s Oceanfront which is now available at local bookstores and online.  This is his second book about the Outer Banks. “Sound Strategy”, a weekly commentary from Twiddy, features issues, ideas and information focused on our mission statement of “Covering the Business News of the Greater Outer Banks”.

Share this Article

Subscribe for Daily Updates

Invalid email address
Send this to a friend