Tag: Attribution error

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.

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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.

Music_decisions

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 labor 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 behavior 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.

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Situations are generally more powerful than we think

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”

Why Blaming the Person and Not the Process for Bad Decisions Prevents Improvement

Does this excerpt from Dinosaur Brains: Dealing with All Those Impossible People at Work seem familiar?

When a decision goes awry, we tend to focus on the people who made it, rather than on the decision itself. Our assumption, which is really unwarranted, is that good people make good decisions, and vice versa.

Good decisions don't always have a good outcome, just as bad decisions don't always have bad outcomes. 

For example, if you are sitting at a blackjack table and happen to receive an 18 on the first two cards, should you hit when the dealer asks as a courtesy? Let's suppose you take that hit and the next card is a 3. You made a horrible decision but you lucked out. Worse, you might never know that you made a poor decision.

We can look at this in a simple two-by-two matrix.

Two by two decision matrix with good and bad processes

In talking about this matrix, Paul DeDodesta, the Harvard stats wiz featured in Moneyball, writes:

We all want to be in the upper left box – deserved success resulting from a good process. … The box in the upper right, however, is the tough reality we all face in industries that are dominated by uncertainty. A good process can lead to a bad outcome in the real world. In fact, it happens all the time.

… As tough as a good process/bad outcome combination is, nothing compares to the bottom left: bad process/good outcome. This is the wolf in sheep's clothing that allows for one-time success but almost always cripples any chance of sustained success.

This is where it gets interesting.

If you can't recognize when you've had ‘dumb luck,' you'll never be in a position to correct the way you're making decisions. Eventually your luck runs out.

James March calls this the False Record Effect and it has implications on how organizations should promote people:

A group of managers of identical (moderate) ability will show considerable variation in their performance records in the short run. Some will be found at one end of the distribution and will be viewed as outstanding; others will be at the other end and will be viewed as ineffective. The longer a manager stays in a job, the less the probable difference between the observed record of performance and actual ability. Time on the job increased the expected sample of observations, reduced expected sampling error, and thus reduced the chance that the manager (of moderate ability) will either be promoted or exit.

Luckily we can improve our ability to make better decisions:

Maybe executives in responsible positions should be required to keep logs, as sea captains do. After each decision, a manager would list his or her reasons for having made it and record how it turned out.

… Usually the only information we have about how and why decisions were made is in the self-serving memoirs of great managers, which leave us feeling that some people just have it and other don't. But what is “it?” We have very little vocabulary for talking about internal thought processes. Decisions feel as if they jump fully grown from one's head.

Daniel Kahneman advocates for recording your decisions in a dedicated decision journal.

A good decision is known before the outcome. It involves a mental representation of the facts known at the time as well as applied judgment. Good decisions are valuable but they are more valuable if they are part of a good decision process because a good process allows for feedback about where you can improve. This feedback, in turn, allows you to constantly get better at making decisions.

James March: On Leadership

After reading The Ambiguities of Experience, I set out to read another book by James March: On Leadership.

The genius of March takes a while to appreciate. I assure you, however, this thought-provoking book is packed full of wisdom you won't find in the business best seller section.

Leadership

On Leadership offers a stunning demonstration of stubborn nonconformity, through the lens of some great works of literature. The questions March poses are simple; the answers are not.

The book, based on March's lectures in a leadership course he taught at Stanford University from 1980 to 1994 is one of the best resources on the subject I've come across. The lectures were based on three primary convictions.

The first was that the major issues of leadership were indistinguishable from issues of life. A proper discussion involved reflecting on grand dilemmas of human existence as they presented themselves in a leadership context. The second conviction was that great literature was a primordial source of learning about such issues for educated people. An inquiring, skeptical, and tolerant gaze was cast on leadership, primarily through a lens provided by four great works of literature – Othello by William Shakespeare, Saint Joan by George Bernard Shaw, War and Peace by Leo Tolstoy, and Don Quixote by Miguel Cervantes. The third conviction was that education, including education in business schools, should not attempt to furnish students with recipes or prescriptions for success.

Here are some of my notes from the book:

If we are to believe the current thinking, the issue of leadership has been resolved.

What is certain is that the industry recycles, sometimes with blatant opportunism, materials and techniques whose link to leadership is not readily apparent: 360 degrees, group dynamics, etc.

The fundamental issues of leadership — the complications involved in becoming, being, and confronting, and evaluating leaders—are not unique to leadership. They are echoes of critical issues of life more generally. As a result, they are characteristically illuminated more by great literature than by modern essays or research on leadership.

Future leaders are taught to remove inconsistencies, ambiguities, and complexities through precise objectives and well-conceived plans. … However, inconsistency and ambiguity have a role in change and adaptation, and the compulsion toward coherence could be an incomplete basis for understanding or improving leadership and life.

In general, effective leadership implies an ability to live in two worlds: the incoherent world of imagination, fantasy, and dreams and the orderly world of plans, rules, and pragmatic action.

There is often ambiguity about outcomes and their attractiveness. There is ambiguity about who is responsible for the outcomes. As a result, reputations are social constructs negotiated among observers, accountants, journalists, academics, leaders, competitors, friends, and enemies. Reputations diffuse through a population of observers and often change over time.

History is pictured as being the result of intention and actions of leaders. Biographies of leaders are a steady element of lists of best selling books. These writings develop notions of the role of leaders in society, on the attributes of leaders, and on the relation between being a leader and being a proper person. they create a language of leadership, a language filled with ideas, vision, power, and virtue.

To an overwhelming extent, contemporary ideologies of action within theories of choice see action as instrumental, coherent, and justified subjectively. Action is instrumental in the sense that it is taken intentionally and is based on expectations of future consequences for the objectives of the actor. Actors are intendedly rational. Action is coherent in the sense that goals and alternatives are well-defined and the decision rule is clear. Actors choose from among alternatives by calculating and comparing their expected returns. And the justification for action is subjective. It is assumed that the value an individual associates with a particular outcome cannot be compared meaningfully with the value another individual associates with a particular outcome. There is no interpersonal comparison of utilities. Values, thus, are assumed to be irrefutable.

Human behavior has often been described as stemming less from calculations of consequences than from the fulfilment of an identity, a logic of appropriateness than a logic of consequence. Moreover, such a bias for action has been praised as resulting in more deeply human, even more effective, actions.

Nothing significant about leadership is likely to be said by people who have been leaders. People who have been leaders are no more capable of an intelligent appreciation of leadership than Americans are of appreciating the American experience, men are of appreciating masculinity, artists are of appreciating art, or the elderly are of appreciating old age. Comment.

In the contemporary western world relationships based on contracts (economic relations) have increased in importance relative to relationships based on senses of belonging (family, group, nation).

Our understanding of the actions of individuals is often influenced by various myths and interpretations of the world that determine what we think of as true, beautiful, and just.

Do we expect a good leader to be clever or innocent? Being clever involves a worldview in which every player pursues individual interest, a virtuous action is one that is effective, and the end justifies the means, with God rewarding the toughest by allowing them to survive—unless he simply bestows the gift of cleverness on those he loves. In this scheme, we admire the wily politician who achieves personal end at the expense of gullible fools, the crafty negotiator, and manipulator.

Being innocent involves a worldview in which people are naturally good, virtue is based on a clear knowledge of good and evil or, at the very least, on simple actions, God rewards virtue, history is marked by human progress.

We only tolerate cleverness when it is crowned with success, while the failure of innocence is attributed to the perversity of the world.

We condemn the military commander whose troops have committed atrocities, because he is morally culpable if he know about them and unworthy of his command if he did not know (because he should have).

What happens in a world populated by a mixture of clever and innocent people? In one standard morality/evolutionary tale, at first, the clever ones dominate and exclude the innocents from all positions of power. the distinctions between the powerful very quickly become tenuous, however, as only the clever have survived and cleverness no longer represents a decisive advantage in a competitive situation. The deviants who remain worthy of confidence now become rare and much sought-after allies and find themselves associated with victorious coalitions. This does not lead to a stable equilibrium, however, as when a society of trust is established once again, opportunistic behavior can become worthwhile.

The person responsible for a decision will tend to interpret its consequences in a favorable light, whereas a changeover of power can lead to accusations that past strategies were failures.

It is therefore very difficult to maintain a balance between efficiency and the capacity to adapt, as there is a tendency, in the case of success, to specialize and refine the procedures that have been successful; and, in the case of failure, to be impatient for positive results and novel innovations.

The stories of successful change recounted after the event by leaders, consultants, or researchers are deceptively simple, as they depict the leader as a hero guided by a vision that goes against the prevailing ideas and is brought to fruition through heroic efforts.

Most original ideas are bad ones. Those that are good, moreover, are only seen as such after a long learning period; they rarely are impressive when first tried out. As a result, an organization is likely to discourage both experimentation with deviant ideas and the people who come up with them, thereby depriving itself, in the name of efficient operation, of its main source of innovation.

The choices of an organization therefore depend on the respective importance that it attaches to its mean performance and the achievement of a few dazzling successes.

As a general rule, politically weak, peripheral, or subordinated groups will advocate diversity and decentralization, while dominant groups will sing the praises of unity and centralization.

The genius therefore makes it possible to explore unknown and sometimes profitable paths in a situation in which the exploitation of the run-of-the-mill skills mastered by the institution does not serve in a crisis. When exploration becomes too costly or creates too much uncertainty and threatens established positions, the institution abandons the genius.

Organizational leadership is a contradiction in terms. The essence of organization is routine, conventional behavior, bound by the standards of knowledge, morality, and legality of the time. The essence of leadership, on the other hand, is escaping the routine, the standard, and the contemporary to implement a new morality, knowledge and legality quite different from that seen by others. Leadership is pre-eminently anti-organizational. Leaders confront organizations rather than build or serve them. Comment.

Modern leaders are, in a similar way, deluded into heroic commitments by the St. Catherines of modern life — journalists, pundits, and professors. The promises are the same—that heroic action will be rewarded by honor and respect—and those promises are as false today as the ones made to Joan by her voices.

War and Peace develops Tolstoy's theory that history does not follow any defined structure, but arises from the complex interaction of countless insignificant events.

Power gives rise to desire, envy, and celebration, but also to revulsion, fear, and jealousy.

The taste for power can be considered an individual characteristic that varies from one person to the next, from one culture to another, from one sex to the other. Like the thirst for vengeance, ambition, or love, it is potentially insatiable.

If there is to be change, we need to reconsider our ideas about order founded on the domination of leaders and an endless tug-of-war among contending interests.

War and Peace proclaims that most people cannot escape from the corruptions of society, but that it is possible to attain some degree of wisdom, based on a lack of faith both in accepted truths and in great expectations along with a capacity to lead a simple life and perform everyday tasks effectively.

Widely diffused competence and initiative, allied with coordination via mutual adjustments, allows for efficient reactions and avoids the need for costly specialists or hierarchical controls. Heroic leadership is neither required nor helpful.

It is unfortunate that studies of visionary leadership focus too much on the lone leader and not enough on the way that he or she can maintain a climate propitious to the blossoming of original visions.

The logic of reality entails two aspects of relevance to a leader. On one hand, reality is complex and our knowledge of it is limited, so we are not sure whether a particular action will achieve our desired goal. This awareness can lead to paralysis (what is the point of doing anything if the results depend on chance?) or cynicism (what is the the point of fighting for a better world if we are not certain of the effect of our actions?). On the other hand, reality can be created by action. It need not necessarily be taken as given.

Heroic leadership demands great action and great commitment. Such commitment is usually justified by expectations of great consequences.

For Quixote, intention is primary in judging virtue; consequences are secondary.

It is often, therefore, easier to understand certain aspects of leaders' behavior by focusing on the pleasures that they can gain from their actions rather than on the consequences they achieve.

“Do you not see, senor, that what is gained by restoring Don Quixote's sanity can never equal the enjoyment his delusions give?”

There are two essential dimensions of leadership: “plumbing,” i.e., the capacity to apply known techniques effectively, and “poetry,” which draws on a leader's great actions and identity and pushes him or her to explore unexpected avenues, discover interesting meanings, and approach life with enthusiasm.

The plumbing of leadership involves keeping watch over an organization's efficiency in everyday tasks, such as making sure the toilets work and there is someone to answer the telephone. This requires competence, not only at the top but also throughout all parts of the organization; a capacity to master the context (which supposes that the individuals demonstrating their competence are thoroughly familiar with the ins and outs of the organization); a capacity to take initiatives based on delegation and follow-up; a sense of community shared by all the members of the organization, who feel they are “all in the same boat” and trust and help each other; and, finally, an unobtrusive method for coordination, with each person understanding his or her role sufficiently well to be able to integrate into overall process and make constant adjustments to it. These aspects are essential for the smooth operation of organizations, but they do not appear in most treatises on leadership, no doubt because they are too mundane or too closely linked to a precise context and specific techniques.

Leadership also requires, however, the gifts of a poet, in order to find meaning in action and render life attractive.

A leader must know how to appreciate life and be aware of reality, without falling into the cynicism and bitterness that can arise from the knowledge that our efforts are probably in vain.

If variations are almost always less efficient than tried and tested methods, particularly in the beginning, how can we encourage exploration?

There is a sizable industry devoted to producing books about leadership and optimal leadership styles. For the most part, such books, portray relatively heroic attributes of leadership as producing relatively heroic consequences.

In our contemporary sophistication about the limits of elementary efficiency, we sometimes forget the simple fact that organizations cannot work well unless ordinary tasks are performed routinely and well.

Organizing so that problems are handled quickly and more or less automatically by whoever is there requires certain general attributes within the culture, certain kinds of individual feelings within the organization, a distribution of individual competences, and some organizational arrangements.

If you are going to encourage initiative, you need to be tolerant of small deviations from what you would do yourself in the same situation. Delegation implies the right to be wrong.

These four things—competence, initiative, identification, and unobtrusive coordination—are very conventional. They are found in any standard book on administration. Because they are so conventional and so standard, many of us who think we are sophisticated sometimes act as through they are unimportant.

As managers rise through an organization, managerial power is celebrated; the trappings of managerial importance are increased; but it becomes less clear that a leader's actions have major effects on organizational performance.

The procedures and drama of decision are organized to emphasize the importance of management and managers, to reassure us of the significance of leaders.

As a result of these rituals and ceremonies, it seems very likely that most organizational leaders exaggerate their control over their success.

The managers we see in an organization are typically people who have risen to their present positions by being evaluated as success in previous positions. Such success encourages them to see their own histories as the consequences of their own actions and competences.

Organizations work because they have mutual trust without personal favoritism.

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Still curious? Read the book and check out my notes from The Ambiguities of Experience.