Discover how effective decision-making enhances employee collaboration and engagement, driving participative management and leadership development.

Prof. Paul Pfleiderer from Stanford Graduate School of Business says, 'Good decision-making is all about following a disciplined process that helps select the course of action that is most likely to lead to a good outcome.' I intend to share my perspective on the effective decision-making process and its impact on an organization and personal life. My research and learning are based on Prof. Pfleiderer’s teachings.

In this part, I will delve into 'avoiding cognitive biases during the decision-making process.' As an HR professional, I believe cognitive biases creep into organizational decision-making and, consciously or subconsciously, into an individual’s personal life.

Researchers have identified several cognitive biases that can lead individual decision-makers to make poor decisions. You might think that these biases would be reduced in group settings; however, several major cognitive biases that affect individuals are often magnified in group settings.

I have often come across scenarios during the hiring process where the potential benefits of having multiple interviewers are not fully realized. It has been found that one of the common errors is focusing on the 'shared information.' The majority of the discussion revolves around information that is known by all panelists rather than sharing some hidden information that has been uncovered by a panelist with other panelists. This is called uncovering 'buried information.' While there are numerous cognitive biases, I will focus on effective decision-making that circumvents cognitive biases and their impact on an organization.

It has often been noticed during the decision-making process that groups tend to arrive at a 'group consensus' easily, and it is often appreciated as good teamwork. One of the main downsides of group consensus is members often withhold information or their views for fear of 'being judged' or going with the tide, i.e., agreeing with others and avoiding being a 'hurdle' in a group. Similarly, researchers have identified that 'cultural advocacy' is not generally good for effective decision-making. In this scenario, members come with their preconceived notions or are determined to argue on the merits of a particular alternative suggested by them. It often turns out to be a contest and the decision is taken based on voting or the member who can win the arguments.

To ensure that cognitive biases don't creep into an effective decision-making process and results are fair, ethical, and effective, Prof. Paul suggests the following:

• Collective rewards and benefits should be the goal: Encourage the group members to focus on the collective and individual rewards and benefits that will accrue to them. The goal here is to make everyone put more weight on group success when they are considering any tradeoff between the benefits of making the best decision and any personal cost that they perceive.

• Be curious and undecided during the process: An effective group discussion leader needs to make an attempt to hide their personal preference. The reason for this is obvious. Revealing something about one’s thinking distorts incentives. Those who share similar views will be more likely to speak up. And those who might disagree and have important information to reveal will be less likely to engage.

• Challenge the status quo: Cast a wider net to arrive at newer alternatives, discuss each alternative, challenge the status quo, and narrow down on alternatives based on merits, risks, and priority.

• Unravel hidden/buried information: Each member of the group is encouraged to contribute according to his or her own expertise. Information remains hidden when discussions focus on shared knowledge. Ideally, decision-making groups are formed in ways that bring together people with diverse expertise and perspectives. There is convincing research showing that more diverse groups tend to make better decisions.

  
  

My Perspective:

I believe that creating awareness of cognitive biases and forming 'Rituals' of an effective and fair decision-making process helps in the following ways:

• Promotes integrity and encourages diverse thought processes.

• Develops leaders who are capable of driving effective decision-making processes that foster growth.

• Decision-making processes across all levels lead to a participative culture that empowers employees.

  
  

The bottom line is institutionalizing progressive 'rituals' leads to 'engaged people' and ultimately results in forming a 'collaborative culture.'

Interesting Facts of Game Theory (Nash’s Equilibrium) in Decision-Making

In continuation of my previous post about avoiding cognitive biases and the impact of a good decision-making process in an organization, I am sharing my learnings on another interesting aspect of decision-making that needs to be incorporated by leaders during negotiations.

Decision-making is not solely about data and additional information such as past trends, experiences, and patterns. A critical aspect is anticipating the reactions or moves of another person or a competitor. Addressing "trade-offs" and anticipating competitor moves are also critical for the negotiation process.

Prof. Paul Pfleiderer from Stanford Graduate School of Business states, "Many of the complex decision problems we confront, especially in business, involve strategic interactions between us and other people. The choices we make in such situations affect other people, and the choices made by these other people affect us. In most situations:

• We won’t be completely sure about how the other people are making their decisions.

• We won’t always know what the others value.

• We may not know what information others have.

• We also may not know how good the others are at figuring out what we might do and figuring out how we might be influenced by their decisions."

  
  

This is where "game theory (Nash's equilibrium)" is extremely helpful. This vast area includes several interesting tools:

• Eliminating Dominated Strategies: This strategy involves eliminating inferior choices to narrow down the alternatives for decision-making. We consider the inferior alternatives regardless of how the other person/entity acts, thus defining our strategy to negate the dominant position of a competitor.

• Mutual Best Responses: This situation occurs when all parties choose a common alternative and will not deviate irrespective of what everyone else is doing. It is a perfect balance otherwise known as "Nash's Equilibrium," named after Nobel laureate John Nash, the proponent of "game theory." This strategy is often seen in extremely competitive and high-paced scenarios where all parties strive to survive.

• Non-monetary Considerations: Not all decisions can be based on financial value; factors like emotions, reputations, and ethics must also be considered.

Game theory is widely regarded as a critical tool in strategic decision-making and is equally helpful in negotiation processes.

My Learnings:

• Never Undermine the 'Human Element': A decision-maker is a human being in most scenarios, and there can be mistakes and failures. While it is difficult to make the process failproof, there are ways and means to avoid pitfalls like cognitive biases, over-dependence on data, and anticipating another's move using "game theory."

  
  

• Never Neglect Ideas or Alternatives or Underestimate Situations: An idea or alternative might seem lucrative or useless at inception but may turn out to be a good decision in the long term. Hence, leadership needs to make fast decisions and calculated risks but should not be based solely on intuitions or data. It is a collective mix, in other words, "trade-offs."