The Coin Flip

Flip a coin. Make a decision

The Coin Flip

HAVE you ever had two options, and found it difficult to choose between them?

You may have applied for MBA programs and received offers from Oxford and Cambridge. You may have been offered a new job from a competing firm. Or, you may have been trying to decide what to get for dinner: Italian or Mexican?

Tough choices.

Since you are well educated, your response to these situations is likely to be a consideration of the pros and cons. The Italian place offers home delivery. But at the same time, you have coupons for the Mexican place and you really like Burritos.

Dilemma. We have all been there.

The decision can be difficult because you are trying to justify action with logical reasoning. However, assuming you are across the facts, in many cases the decision will already have been made. Logic makes us think, but emotion makes us act. And so the option you will already be leaning towards is the one that you find more emotionally appealing.

Since emotions are controlled by a more primitive part of the brain than the parts responsible for reason, logic or language, it may not just be difficult to engage in logical reasoning in these situations, it may actually be impossible. However, even if this is the case, you can still hope to make sensible decisions if you follow these three simple steps:

  1. Acceptance: The first step is simply to accept that your actions are driven by emotion not logic.
  2. Understanding: The second step is to determine your emotional state. Some people are very in tune with their emotions (and all the better). However, for the rest of us, there is a nice trick that you can use. Take a coin from your pocket, and flip it. Heads you will go for Italian food, and tails you go for Mexican. After the coin lands, observe the result, and immediately observe how you feel about the outcome. If the coin lands heads and you feel happy, then Italian food it is. But if you are sad about the result, then you have made a discovery; you actually prefer Mexican.
  3. Reflection: The third step brings logic back into the picture. You now know which option you prefer, and so consider whether there are any logical reasons why your preferred option does not make sense. For example, you might prefer Mexican food but [you are allergic to Pinto beans / the store is closed / insert logical objections here].

[For more information on consulting concepts and frameworks, please download “The Little Blue Consulting Handbook“.]

The Road Not Taken

Which path are you following?

TWO ROADS diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;

Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same,

And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.

~ Robert Frost

Daniel Kahneman on improving the decision making process

IN MAY 2008 the McKinsey Quarterly spoke to Nobel laureate Daniel Kahneman, notable for his work on behavioural finance and hedonic psychology, about quality control and improving the decision making process.

1. The decision factory

Kahneman says that you can think of an organisation as a factory for producing decisions. The organisation might produce other things, but it produces decisions at all levels. Thinking about decisions as a product is a useful way to think about it, because it immediately raises the issue of quality control. As an organisation, whenever you have a product you take measures to ensure that your product meets certain standards.

2. Improving the quality of decisions

What can be done to improve the quality of decisions that are produced?

Kahneman indicates that quality control of decisions will be organised, in part, by bearing in mind those mistakes that are common and recurrent, and by making a deliberate effort to check whether those mistakes are happening.

Are there ways of eliciting the best information that is available in an organisation? Are the talents of the people that surround the decision maker utilised effectively? In many cases the answer is no. One could do a great deal better in utilising the human resources and information that are available in the process of decision making.

Unfortunately, there is a lot of hostility to the idea of improving decision making processes. Kahneman argues that as there is convergence to a decision, dissent becomes progressively more difficult and costly. Some changes, even though they may be desirable, are not adopted because they threaten the leadership of the organisation too much.  As such, people warning of potential disaster are increasingly set aside, shunned and treated as basically disloyal to the organisation that is committing itself to do something.

3. Pre-Mortem

Given that improving the decision making process is a difficult task, Kahneman presents the idea of the “Pre-Mortem”, an idea that he borrowed from one of his contemporaries, Gary Klein.

The Pre-Mortem is a simple idea, and involves a very straightforward procedure that benefits an organisation by helping to improve the decision making process. When you have a plan that is being formulated, convene your group for a short meeting. The meeting might be led by the person in charge or facilitated by someone else. Either way, the group should be presented with the following scenario: “it is a year from now. We have implemented the plan. It was total a disaster. You have a sheet of paper in front of you, write down a history of the disaster.” After giving everyone some time to write down their ideas you collect the pieces of paper and read them out. The process does not have to involve an extensive discussion.

The beauty of the Pre-Mortem is that it legitimises dissent. In fact, it does more than legitimise dissent. In organisations where the members are competitive, you expect people to think quite hard about the flaws in the idea and what could go wrong. In a room of twenty people you might expect three or four new ideas that can be used to readjust and improve the proposed plan of action.

4. Anchoring

Kahneman identifies anchoring as one of the big sources of mistakes in the process of decision making.

When you think about some quantity, like the amount of time it will take to finish a project, the first number that gets mentioned has an enormous impact on the way that people think.

Kahneman states that the psychology of anchoring is simple and happens automatically. There is nothing we can do about it. You retrieve a biased sample of information and then you evaluate that sample, and then it is already too late.

Kahneman provides a simple explanation of anchoring. Imagine you have a group of people. You ask them to write down the last four digits of their social security number, and then to consider a question, is the number of physicians in Manhattan higher or lower than the number you just wrote down? Now you ask the group, what is your best guess about the number of physicians in Manhattan? Kahneman suggests that what you are going to find is a difference of roughly 30% in the size of the estimates between the people with high social security numbers and the people with lower social security numbers.

When there is a particular number that is critical to a decision, try to trace down where the number came from, who brought it up first, and what information was used to support that number initially. Tracing down the history of a number is an example of something that is not too hard to do and, Kahneman believes, is almost guaranteed to improve things.

One implication of anchoring is that, if you are the leader and want to have an honest discussion about a number, you shouldn’t start with a number.

5. Opinions on paper, pre-discussion

Making discussions more fruitful and productive is something that we should think about. Kahneman provides one suggestion of how this might be done.

Before initiating a discussion solicit the opinions from each member of the group on paper. If you are going to generate an estimate of a number, for example what price is to be offered for a particular project, then getting opinions from the group on a slip of paper is going to improve the quality of the discussion.

This approach will help to draw out dissenting points of view. Once the discussion has begun, some group members may choose not to voice their dissenting opinion or may silently acquiesce to the prevailing view. Obtaining everyone’s starting position before the discussion ensues avoids this from happening.

In some cases, soliciting individual opinions before you discuss can make the discussion unnecessary. Kahneman gives an example of his involvement in an academic committee where he implemented this idea. In deciding whether to fund particular grants, the academics discovered that they loved to discuss, at great length, grants on which they all agreed. Soliciting individual opinions prior to discussion resulted in a significant reduction in the amount of time wasted on discussion.