Decision Myths and Cognitive Bias
Decision making is one of the most essential skills that a leader must have. We have all witnessed or read about ridiculous decision blunders made by political leaders, sports team owners, or some company trying to stay relevant. It is easy to look at these decisions from an outside perspective and think — “dam, they are dumb. It’s so obvious that they shouldn’t have done that” or “wow, for a smart person, that guy is really making bad decisions.”
Surprisingly, intellectual capability does not provide much help in differentiating success from failure when it comes to complex, high-stakes decisions. Most leaders stumble when it comes to the social, emotional, and political dynamics of decision making. It’s also common for leaders to fall into cognitive traps, regardless of intellect or expertise in a particular field. Cognitive bias is one of the most common traps for experts and leaders to fall into. One powerful example of this is a tragedy that happened on Mount Everest in 1996, where experienced guides ignored their own rules, leading to the death of several climbers.
On May 10, 1996, two expedition teams, lead by experienced climbers, decided to ignore their turnaround-time rule stated that if you can not reach the top of the mountain by two o’clock in the afternoon, then you should turn around. The reason was that you did not want to be climbing down in darkness. However many arrived after 4 o’clock and as a result had to climb down not only in the dark, but during a blizzard. Five people died.
The first cognitive bias evident in the Everest case is the overconfidence bias. Humans are systematically overconfident in our judgements. Scott Fisher, the leader of one of the expedition teams, once said — “We got the big E [Everest] figured out. We’ve got it totally wired. These days, I’m telling you, we’ve built a yellow brick road to the summit.” When Rob Hall, the leader of the other team was approached by a worried climber concerned about the teams ability to make it to the summit, he told the worried climber "It’s worked 39 times so far, pal, and a few of the blokes who summited with me were nearly as pathetic as you.”
The second cognitive bias is the sunk-cost effect. This refers to peoples tendency to escalate commitment to a course of action in which they have made substantial prior investment of time, money, or other resources. If people behaved rationally, they would make choices based on marginal cost and benefits of their actions. Instead, most “throw good money after bad.” In the Everest case, the climbers did not want to “waste” the time, money and other resources that they had spent over many months to prepare for the final summit push. They had spent $65,000 plus many months training and preparing. The sunk costs were substantial and so they violated the turnaround-time rule.
The third cognitive bias evident in the Everest case is the recency effect. The recency effect is one portion of what is known as the availability bias. The availability bias is when we place too much emphasis on recent events. The climbers were fooled because the weather on the mountain had been quite good in the recent years. Therefore, they underestimated the probability of a bad storm.
Understanding the way high-level decisions are made in high-level situations, like the example above, can help us better understand decision making at a smaller or individual level.
