#ReadingNotes: ‘Before You Make That Big Decision’ by Daniel Kahneman, Dan Lovallo, and Olivier Sibony – HBR June 2011

Famous HBR article that argues humans have built in biases, which we are incapable of seeing in ourselves. But we can see them in others. With a checklist of biases, a decision-making can detect errors in recommendations.

This post is part of the #ReadingNotes series, see here for more (including format and use of bulletpoints).

Source: Kahneman, Daniel, Dan Lovallo, and Olivier Sibony. “Before you make that big decision.” Harvard business review 89.6 (2011): 50-60. [Link at 5/02/21]

KEY ARGUMENTS

• Humans have built in biases, which we are incapable of seeing in ourselves.
• Forewarned is not enough. An awareness of your biases while coming up with recommendations is not enough.
• But we can see the biases in others.
• In an organisational setting, typically there is someone making the decision, who is relying on their team to make good recommendations.

• A checklist of questions which tests the method and content of a recommendation can improve the quality of decisions made.
  • ASK YOURSELF
    • Is there any reason to suspect motivated errors, or errors driven by the self-interest of the recommending team? (Deliberate and unconscious self-interest)
    • Have the people making the recommendation fallen in love with it? (Affect heuristic)
    • Were there dissenting opinions within the recommending team? (Groupthink)
  • ASK THOSE RECOMMENDING
    • Could the diagnosis of the situation be overly influenced by analogy to a memorable success? (Saliency bias)
    • Have credible alternatives been considered? (Confirmation bias)
    • If you had to make this decision again in a year, what information would you want, and can you get more of it now? (Availability bias.)
    • Do you know where the numbers came from? (Anchoring bias)
    • Is the team assuming that a person, organization, or approach that is successful in one area will be just as successful in another? (Halo effect)
    • Are the people making the recommendation overly attached to past decisions? (Sunk cost fallacy, endowment effect.)
  • ASK ABOUT THE PROPOSAL 
    • Is the base case overly optimistic? (Overconfidence, planning fallacy, optimism biases, competitor neglect.)
    • Is the worst case bad enough? (Disaster neglect)
    • Is the recommending team overly cautious? (Loss aversion)

• When to use: a formal process is justified when a decision is both important and recurring.
• Who should conduct the review: real separation decision-maker and the team making the recommendation.
• Enforcing discipline: using checklists is a matter of discipline, not genius. Partial adherence may be a recipe for total failure.
• Costs and benefit: the real challenge for executives who want to implement decision quality control is not time or cost. It is the need to build awareness that even highly experienced, superbly competent, and well- intentioned managers are fallible.

AGREE

• Useful checklist.

LEARN

• The different biases
• The specific responses to each 

CRITIQUE

• Narrow to the process of this decision. Missing:
  • The wider culture of the organisation (eg how strong need to disagree with boss).
  • The systems of knowledge production that drive the nature of the evidenced that is available and acceptable.
  • The purpose of the decision, eg shareholder maximisation in a world that cannot cope.
• Implies this is an improvement on an existing set of activities which are basically sound.

INTEGRATION

• Good checklist to use on decisions.

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