Decision Making In Teams

How to make decisions? Although it is one of the most important tasks of any executive, it is also one of the hardest. Making a wrong decision can harm an organization or career easily. Within the following, we will touch upon several pitfalls that affect the decision-making process and the mindset. These ‘decision defaults’ can be traced back to the psychological effects and are likely to undermine business decisions. When mitigating team failure, the leader holds a critical position. On the one hand, he or she is a facilitator of information, on the other hand, the coordinator of decisions.

In the following, you will learn about several hidden pitfalls and learn how to overcome them.

Amplification Effect

It is in our human nature to make decisions based on biased thoughts and mental shortcuts. In a group format, these effects are intensified. We tend to underestimate the needed time for a project; we become overconfident about making future predictions and assuming our tastes and ideas are representative of others. This effect occurs in a team even more amplified than as an individual.

Through such amplification effects, an idea moves rapidly from one person to another in the team. Eventually, this produces a belief within the group that the idea is, in fact, a truth, leading to decision making pitfalls. Trust in a team should never stand in the way of a critical mindset.

How to overcome this pitfall?

Even if trust within a team is a source for good group performance, you should still stay critical of each other. Stimulate criticality by:

1. Creating an open team culture where people are not afraid to be critical and reflect.
2. Encourage group discussions before finalizing a decision.

The Polarization Effect

When a group has to make a decision, they are likely to depart from an extreme converged point of view. Suppose a majority of the people is leaning towards a more risk-averse behavior. In that case, the cumulative result will be that the team is even more risk-averse than the individual team members. As a result, a team can miss out on otherwise promising solutions or options.

How to overcome this pitfall?

Similar to the Amplification effect, you can overcome this decision default by:

1. Staying critical to your team members’ judgments and arguments.
2. Do not be afraid to speak up and encourage discussion.

Common information bias

Teams tend to focus their conversations on information they have in common instead of sharing their expert knowledge. Commonly held information is considered more credible. Additionally, we avoid taking action that could damage our ego and avoid decisions that can potentially result in criticism and regret. Consequently, we stick with verdicts that are related to what is already known or accepted before. This leads to one-sided, amplified decisions.

So, how can you overcome this pitfall?

Albeit choosing the status quo is the right decision, do not solely choose it because it is the most familiar decision to make. Instead, use these techniques to increase your awareness:

1. Remind yourself of your objectives.
2. Go beyond the status quo as your only alternative; identify other options as well.
3. Ask yourself, would you have chosen the status quo if it was not the status quo?
4. Do not emphasize the cost and effort of changing from the status quo.
5. The desirability of the status quo will change over time, therefore evaluate alternatives looking at both the present and the future

The Anchoring Effect

When making decisions, we tend to weigh the first information received over any secondary knowledge. Subsequently, initial data, expressions, or estimates anchor our thoughts and behavior.

In a business environment, we tend to inform future business decisions on past trends and data. This is a problem, as it highlights past events and neglects to look at other factors. In particular, when rapid changes in the marketplace occur, this approach can lead to poor forecasting.

So how can you avoid this pitfall?

Although the influence of anchors is widespread, you can reduce their impact as follows:

1. View a problem from different perspectives
2. View a problem first individually, then ask the opinion of others
3. Keep an open mindset and include information and opinions of a variety of people
4. Take care in anchoring the stakeholders you solicit for information
5. Take in particular care when negotiating, try to overcome to be anchored by an initial proposal

Sunk-Costs

A third decision fallacy is to justify decisions made in the past, even if they are no longer applicable to the new problem or situation. Past decisions can become like a ‘sunk cost’ where the resources spend on the first decision unconsciously influence future decisions, even if they are irrelevant to a new situation. This becomes a difficulty because we fail to admit to our mistakes or bad choices made. Subsequently, we rather stick with poor quality decisions than acknowledging the miscalculation and avoid the risk of public criticism. Unfortunately, some corporate cultures stimulate the invisible force of Sunk-Costs.

How can you overcome this pitfall?

Overall, try to consciously set aside any sunk costs by adhering to the following tips:

1. Start decisions with a fresh beginners mindset
2. Involve and listen to those people who did not participate in previous decisions.
3. Find out why deviating from an earlier bad decision made will make you feel upset. Moreover, remember that you are allowed to make mistakes.
4. Take a look at which sunk-cost biases of direct stakeholders influence you.
5. Cultivate a culture where failure is accepted. Besides, focus on the quality of decision making and rather than solely on the outcome.

Confirming-Evidence

People tend to seek information that confirms their point of view in order to defend it. As a result, we less frequently consider information that is contradicting or conflicting with our preferred ruling.

The cause of this decision behavior can be traced back to two psychological strengths.

1. The impulse to subconsciously decide before we have all the information to make a sound decision.
2. We tend to be more engaged with argumentation we favor than with contrasting lines of reasoning.

How can you overcome this pitfall?

You can make sure that you are making the right choice by testing your subconscious with the following:

1. Check if you have examined all available evidence equally and stay critical when reading confirming information.
2. Involve a devil’s advocate or formulate counter-arguments yourself.
3. Honestly assess your efforts to find information to support your decision.
4. When asking advice of others, avoid asking leading questions.

Framing

The way you formulate a question or problem automatically defines how you will answer it. There are two ways to formulate a problem or question:

Gains versus losses

When a problem is formulated in terms of gains, people lean towards choosing the risk-averse option. However, when it is formulated in terms of avoiding losses, they favor taking a risk.

Formulating with a different reference point

You can solicit various reactions of people by framing your question differently, even if you ask the same. If you concretely change the reference point, for instance, a financial number, you change the mental connection and thereby its context.

In general, people adopt the formulation as it is presented instead of reformulating a problem or question to their understanding.

How can you overcome this pitfall?

Framing a problem or question right is always critical. To do so, consider the following:

1. Attempt to reframe the problem or question and look for red flags.
2. Stay neutral when formulating a problem or include different reference points.
3. Assess the formulation of your problem throughout the decision-making process several times.
4. When others formulate, challenge them by rephrasing the problem.

Estimating and Forecasting Errors

In our daily lives, we are constantly making estimates. As managers, you make judgments and forecasts; however, there is rarely clear feedback about the accuracy of these predictions. The danger of this force consequently lies within the fact that with uncertain situations, we are influenced by a set of invisible forces that distort our capability to assess different options rationally:

The invisible force of overconfidence

People tend to either underestimate the high end and overestimate the low end of a crucial variable, which results in the risk of missing opportunities and wasted money.

The invisible force of prudence

To be on the safe side’ people tend to adjust their estimates to favor the opposing party. However, being too careful in your estimation can backfire in your decision making, in particular in the long run.

The invisible force of recallability

Our estimations are often based on our memory of past events. In turn, we remember events with a high impact better than others. Consequently, dramatic or traumatic events influence your thinking more than regular, less memorable events.

How can you overcome this pitfall?

Approach estimations with rigor. Furthermore, these precautions can be taken:

1. First, when faced with overconfidence, take into consideration the extremes of the range of values. Also, think about occasions where the estimates could be different.

2. Second, when influenced by carefulness, consistently set honest estimates and explain to your collaborators that they have not been modified. Moreover, test their reasonability.

3. Last, to decrease the effect of faults in the recollection of your memory, carefully check your estimates and get verifiable data instead.