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How Situations Influence Decisions

Michael Mauboussin, the first guest on my podcast, The Knowledge Project, explains how our situations influence our decisions enormously in Think Twice: Harnessing the Power of Counterintuition.

Mistakes born out of situations are difficult to avoid, in part because the influences on us are operating at a subconscious level. “Making good decisions in the face of subconscious pressure,” Mauboussin writes, “requires a very high degree of background knowledge and self-awareness.”

How do you feel when you read the word “treasure”? Do you feel good? What images come to mind? If you are like most people, just ruminating on “treasure” gives you a little lift. Our minds naturally make connections and associate ideas. So if someone introduces a cue to you— a word, a smell, a symbol— your mind often starts down an associative path. And you can be sure the initial cue will color a decision that waits at the path’s end. All this happens outside of your perception.

People around us also influence our decisions, often with good reason. Social influence arises for a couple of reasons. The first is asymmetric information, a fancy phrase meaning someone knows something you don’t. In those cases, imitation makes sense because the information upgrade allows you to make better decisions.

Peer pressure, or the desire to be part of the in-group, is a second source of social influence. For good evolutionary reasons, humans like to be part of a group— a collection of interdependent individuals— and naturally spend a good deal of time assessing who is “in” and who is “out.” Experiments in social psychology have repeatedly confirmed this.

We explain behavior based on an individual's choices and disposition and not the situation. That is, we associate bad behaviour with the person and not the situation. Unless, of course, we're talking about ourselves. This is “the fundamental attribution error”, a phrase coined by Lee Ross, a social psychologist at Stanford University.

There are two sides to this sword as the power of situations can work for good and evil. “Some of the greatest atrocities known to mankind,” Mauboussin writes, “resulted from putting normal people into bad situations.”

We believe our choices are independent of circumstance, however, the evidence points in another direction.

Some Wine With Your Music?

Consider how something as simple as the music playing in a store influences what wine we purchase.

Imagine strolling down the supermarket aisle and coming upon a display of French and German wines, roughly matched for price and quality. You do some quick comparisons, place a German wine in your cart, and continue shopping. After you check out, a researcher approaches and asks why you bought the German wine. You mention the price, the wine’s dryness, and how you anticipate it will go nicely with a meal you are planning. The researcher then asks whether you noticed the German music playing and whether it had any bearing on your decision. Like most, you would acknowledge hearing the music and avow that it had nothing to do with your selection.

But this isn't a hypothetical, it's an actual study and the results affirm that the environment influences our decisions.

In this test, the researchers placed the French and German wines next to each other, along with small national flags. Over two weeks, the scientists alternated playing French accordion music and German Bierkeller pieces and watched the results. When French music played, French wines represented 77 percent of the sales. When German music played, consumers selected German wines 73 percent of the time. (See the image below) The music made a huge difference in shaping purchases. But that’s not what the shoppers thought.

While the customers acknowledged that the music made them think of either France or Germany, 86 percent denied the tunes had any influence on their choice.


This is an example of priming, which psychologists formally define as “the incidental activation of knowledge structures by the current situational context.”1 and priming happens all the time. For priming to be most effective it must have a strong connection to our situation's goals.

Another example of how situations influence us is the default. In a fast moving world of non-stop bits and bytes the default is the path of least resistance — that is, it's the system one option. To move away from the default is labour intensive on our brains. Studies have repeatedly shown that most people go with defaults.

This applies to a wide array of choices, from insignificant issues like the ringtone on a new cell phone to consequential issues like financial savings, educational choice, and medical alternatives. Richard Thaler, an economist, and Cass Sunstein, a law professor, call the relationship between choice presentation and the ultimate decision “choice architecture.” They convincingly argue that we can easily nudge people toward a particular decision based solely on how we arrange the choices for them.

One context for decision making is how choices are structured. Knowing that many people opt for the default option, we can influence (for better or worse) large groups of people.

Mauboussin relates a story about a prominent psychologist popular on the speaking circuit that “underscores how underappreciated choice architecture remains.”

When companies call to invite him to speak, he offers them two choices. Either they can pay him his set fee and get a standard presentation, or they can pay him nothing in exchange for the opportunity to work with him on an experiment to improve choice architecture (e.g., redesign a form or Web site). Of course, the psychologist benefits by getting more real-world results on choice architecture, but it seems like a pretty good deal for the company as well, because an improved architecture might translate into financial benefits vastly in excess of his speaking fee. He noted ruefully that so far not one company has taken him up on his experiment offer.

(As a brief aside, I engage in public speaking on a fairly regular basis. I've toyed with similar ideas. Once I even went as far as offering to speak for no pre-set fee, only “value added” as judged by the client. They opted for the fee.)

Another great example of how environments affect behaviour is Stanley Milgram's famous experiment on obedience to authority. “Ordinary people, simply doing their jobs, and without any particular hostility on their part, can become agents in a terrible destructive process,” wrote Stanley Milgram. The Stanford Prison Experiment is, yet, another example.


The key point is that situations are generally more powerful than we think and we can do things to resist the pull of “unwelcome social influence.” Mauboussin offers four tips.

1. Be aware of your situation.

You can think of this in two parts. There is the conscious element, where you can create a positive environment for decision making in your own surroundings by focusing on process, keeping stress to an acceptable level, being a thoughtful choice architect, and making sure to diffuse the forces that encourage negative behaviors.

Then there is coping with the subconscious influences. Control over these influences requires awareness of the influence, motivation to deal with it, and the willingness to devote attention to address possible poor decisions. In the real world, satisfying all three control conditions is extremely difficult, but the path starts with awareness.

2. Consider the situation first and the individual second.

This concept, called attributional charity, insists that you evaluate the decisions of others by starting with the situation and then turning to the individuals, not the other way around. While easier for Easterners than Westerners, most of us consistently underestimate the role of the situation in assessing the decisions we see others make. Try not to make the fundamental attribution error.

3. Watch out for the institutional imperative.

Warren Buffett, the celebrated investor and chairman of Berkshire Hathaway, coined the term institutional imperative to explain the tendency of organizations to “mindlessly” imitate what peers are doing. There are typically two underlying drivers of the imperative. First, companies want to be part of the in-group, much as individuals do. So if some companies in an industry are doing mergers, chasing growth, or expanding geographically, others will be tempted to follow. Second are incentives. Executives often reap financial rewards by following the group. When decision makers make money from being part of the crowd, the draw is nearly inescapable.

One example comes from a Financial Times interview with the former chief executive officer of Citigroup Chuck Prince in 2007, before the brunt of the financial crisis. “When the music stops, things will be complicated,” offered Prince, demonstrating that he had some sense of what was to come. “But as long as the music is playing, you’ve got to get up and dance.” The institutional imperative is rarely a good dance partner.

4. Avoid inertia.

Periodically revisit your processes and ask whether they are serving their purpose. Organizations sometimes adopt routines and structures that become crystallized, impeding positive change. Efforts to reform education in the United States, for example, have been met with resistance from teachers and administrators who prefer the status quo.

We like to think that we're better than the situation, that we follow the decision making process and rationally weigh the facts, consider alternatives, and determine the best course of action. While others are easily influenced, we are not. This is how we're wrong.

Decision making is fundamentally a social exercise, something I cover in my Re:Think Decision Making workshop.

1. “Automaticity of Social Behavior: Direct Effects of Trait Construction and Stereotype Activation on Action”