Why is it so easy to criticize the decisions of others but so difficult to make the tough calls ourselves? What is it that makes high-stakes decisions so difficult? I used to think it was because it was hard to decide the right solution. But as I’ve coached executives struggling with such decisions, I’ve noticed that often it’s fairly clear for them which decision to take. What makes it difficult is accepting the fear of making a bad decision.
Research shows that we feel loss far more acutely than we feel gain. In fact, most studies suggest that losses are twice as powerful, psychologically, as gains. Applying “Loss Aversion” to decisions explains why the pain of making a bad decision is far more powerful than the joy of making a good one. This leads to a real fear of making a bad decision, which in turn invites some sub-optimal behaviors including:
- Denial and procrastination (e.g., I keep investing in a poor performer rather than admit it was a mistake to put him in that role and terminate)
- Risk aversion (e.g., I make the safe decision even when my heart is with the bold decision)
- Diluting the decision (e.g., I cut two product lines when the analysis shows cutting 5 is required)
- Requiring consensus (e.g., unless all 8 of us can agree on a change, we won’t do anything different)
- Passing the buck (e.g., I don’t want to face the consequences of a bad decision, so I’ll kick this around the organization or up the hierarchy and make someone else decide)
This is a problem. When people procrastinate, avoid risk, dilute, or pass decisions rights, the organization suffers. Innovation and organizational learning are fostered when employees who are closest to the action make decisions efficiently. When you don’t have this, you invite the arm-chair quarterbacks sitting around complaining that the organization doesn’t make tough decisions. So how can we do this?
We can accomplish better, more efficient decisions when we make it safer for people to make bad decisions. Lower the stakes of Loss Aversion so that people are willing to take risks and act decisively. How? It starts by checking what you celebrate.
If you only acknowledge those decisions that turned out positively (or worse, if you negatively acknowledge those that turned out poorly) you’re fanning the flames of Loss Aversion. On the flip side, if you focus your public acknowledgement on learning opportunities, you might actually dilute the fear of making a bad decision.
Here’s how it might look in practice:
- Both Jane and Jim decide to invest in a technology that they believe will have a 5% positive ROI on their business.
- Jane’s decision makes her some money – her investment yielded at 10% ROI!
- Jim’s decision didn’t – his investment yielded a 0% ROI.
- At the next meeting, the Leader celebrates both Jane and Jim for making an investment decision based on sound, albeit imperfect, logic and information. The Leader gives equal weight to exploring what Jane learned that would lead her to more accurately predict her ROI in the future, as well as what Jim learned that would help him improve forecasting next time as well.
- After all, they were both off by ~5%, suggesting that the next forecast has potential room for improvement in this process.
In that sort of environment, Jim becomes much less concerned about making a good decision with a negative outcome, which makes him more inclined to make the decision efficiently, accepting his decision rights, and make the bold choice he believes is the right one for the organization. But this requires his organization to embrace a learning mindset and accept the trade off of imperfect decisions today for better decisions tomorrow.
Is your organization willing to accept that trade off?