Avoiding Errors in the Decision-Making Process

Many would argue that the cornerstone of high-quality medical care is the ability of physicians to make clinical decisions. The same skill — decision-making — is the cornerstone of high-quality leadership and successful entrepreneurship. Yet, most physicians, leaders, and entrepreneurs have had little formal training in how to decide and are unaware of the systematic errors in judgment to which people are prone, particularly in uncertain situations.

Consider emergency department (ED) physicians, for example, who see patients they do not know, attend to limited cues and information, and search for patterns that enable them to make a quick diagnosis. Uncertainty in these situations is high, as physicians must consider resource constraints, desires of the patient, and other demands in the ED while deciding on a treatment. This is not that different a scene from the organizational leader who tries to uncover the source of conflict that is debilitating one part of the organization, and he/she has limited knowledge and even less time to make a diagnosis. Entrepreneurs often see investment opportunities yet believe they must act quickly on the basis of a hunch, in order to avoid being scooped by someone else.

In each case it is likely that the physician, leader, or entrepreneur will do what all decision makers do — use cognitive short cuts and rules of thumb, known as ‘heuristics’ in psychology — to make a decision. Heuristics are mental procedures or “rules of thumb” that reduce the cognitive efforts involved in making judgments, and without them, we could never process all the information needed to make the many choices involved in daily life. Most decisions we make in a day do not require exhaustive information processing and rational analytical procedures. Thus, heuristics enable time-pressed decision makers a way of simplifying a complex world and heuristics generally produce good outcomes. The problem with heuristics, however, is that most people do not know they use them and do not know that heuristics can also lead to serious errors in judgment. The best way to avoid such decision errors is to be aware of the heuristics we use and know when they can be troublesome or even catastrophic.

Cognitive psychologists have identified numerous heuristics that can lead to biases and errors in judgment. Three of the most common heuristics are availability, representativeness, and anchoring.

Availability is the tendency to judge the likelihood of events by the ease with which relevant examples come to mind. The availability bias leads people to assume that information, which is readily available to them from memory, is also the most relevant information. Writing in The New Yorker, physician Jerome Goodman describes a doctor who misdiagnosed a case of aspirin toxicity as subclinical pneumonia, because the patient had some — not all — of the symptoms of subclinical pneumonia, an infection that numerous previous patients had. The pneumonia diagnosis was readily available (i.e., many previous patients were diagnosed with it), making it difficult for the physician to see those symptoms that were inconsistent with the diagnosis. People judge the probability of an event by the ease with which information is available about that event. Events that evoke emotions or are vivid will be more available than events that are bland, unemotional or vague.

Representativeness occurs when decision makers tend to look for traits in an individual that may be similar to previously held stereotypes. When decision makers are overly influenced by what they think is “typical” and avoid possibilities that contradict their mental picture of what is typical, they are subject to the representativeness bias. Managers use the representativeness heuristic when they predict the success of a new product based on the similarity of that product to past successful and unsuccessful product types. Representativeness means that when we make connections based on stereotypes we overlook base rate data. Consider this example. Mark is finishing his MBA at a prestigious university. He is very interested in the arts and at one time considered a career as a musician. Is he more likely to take a job in the management of the arts? Or with a management consulting firm? Most people approach the problem by analyzing the degree to which Mark is representative of their image of individuals who take jobs in each of the two areas. Consequently, they usually conclude “in the management of the arts.” Such a conclusion overlooks base rate data: a much larger percentage of MBAs go into consulting than go into the arts. When presented with the choices but not Mark’s description most people choose the “consulting” option. Prospective entrepreneurs ignore base rates when they spend too much time imagining their success and too little time considering the base rate for business failures.

Anchoring refers to the tendency of people to make estimates by starting with a specific number or data point and then adjusting only incrementally from the initial anchor. Considerable research by cognitive psychologists confirms that decision makers adjust their initial estimates insufficiently in the face of new information and, in fact, have a tendency to look for information that justifies their initial anchor. Anchors essentially bring premature closure to our thinking about a decision. Anchoring takes many guises. For example, we know that first impressions can anchor subsequent thoughts. Past events might also provide anchors. For example, a forecaster attempting to project the number of patients who will visit a clinic next January might well begin by looking at the number who visited last January. The historical number becomes the anchor which the forecaster adjusts based on other data. Although this might work reasonably well most of the time, it gives too much weight to past figures and not enough weight to other factors. Historical anchors are particularly problematic in situations characterized by rapid change. Anchors come into play anytime we negotiate: for a salary, for a home, or for a car. Negotiators who make well-reasoned first offers usually achieve the best outcomes, because a first offer anchors the subsequent conversation and opponents adjust only incrementally from the anchor.

The heuristics of availability, representativeness, and anchoring are but a few of the many cognitive shortcuts we all take in making decisions. For the majority of decisions we make, heuristics serve us well. However, for choices with significant consequences — life or death, expanding a product line, starting a business — an over-reliance can lead to problems. When we use available information, we think we know more than we do. When we stereotype, we overlook important data in favor of data that fits into our mental picture of what we think is likely. When we anchor, we then search for information that supports the anchor and overlook information that challenges the anchor. What, then is a decision maker to do?

1. Awareness. The first step is to be aware of the shortcuts we use and their potential danger. People who are educated in the practice of decision making are less likely to make some of the kinds of mistakes discussed here. When we know about our tendency to use heuristics, we can work hard to avoid them.

2. The known unknowns. People have a tendency to be the most overconfident in situations where they know the least. Those are exactly the situations where heuristics can be the most troublesome. Effective decision makers develop primary as well as secondary knowledge. Primary knowledge includes the facts we believe are true. Secondary knowledge is an awareness of how reliable the primary knowledge is. Effective decision makers know what they don’t know and aggressively seek information to sure up what they don’t know.

3. Disconfirming questions. When making decisions of high consequence, decision makers should seek information that questions one’s initial judgment rather than reinforces the initial judgment. Managers should ask disconfirming questions about ideas but also about data sources. What is the “critical” information and where did it come from? Would other information sources lead me to a different interpretation or conclusion?

4. The power of memory. Effective decision makers know to be cautious about the things that are easily remembered. When making important decisions, smart managers recognize that recency is powerful, that memory loves a salacious tidbit, and that bland, yet critical base-rate data struggles to compete for decision maker attention. When smart entrepreneurs consider investing their life savings in a new idea, they recognize that memory provides one source of information, but they seek out base-rate data. They ask themselves, “How else might this turn out and what am I not seeing?”

Decision-making is not a skill we inherit, but it is a skill that can be learned. A good start at becoming a better decision-maker is recognizing that we all use heuristics — many more than have been described here. Recognizing when these heuristics may lead decision makers away from good choices distinguishes effective decision makers from those prone to errors. Vigilance, hard work and careful attention to the accuracy of what we think we know can lead to better choices, whether it is in the ED or the boardroom.

Donde Ashmos Plowman, PhD, is the Flaskerud Professor of Strategic Management, and Dennis Duchon, PhD, is the Stokely Professor of Human Resources in the Physician MBA Program at the University of Tennessee.

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