One of the most important functions of a leader is to make good decisions. But for a lot of us, making good decisions seems harder than ever. The availability of information has exploded through access to the internet at our fingertips. The growing field of Big Data means nearly anything can be analyzed for insights. In theory, these developments should make decision-making more informed. But research shows that, counter-intuitively, additional information can actually diminish our ability to make good decisions. So how can we approach decision-making to be less challenging and more productive?
One area of interesting research on this topic is the science and psychology around decision-making. Several studies seem to coalesce around the conclusion that more information enhances decision-making: but only up to a point. One study published in the Harvard Business Review found that “traders who had the right balance of diversity of ideas in their network had a return that was 30% higher.” The study found that “right balance” was a quantifiable amount of social interaction that increased the diversity of information available to the traders but was not so high that the traders became subject to “group think,” or simply going along with the crowd. Other studies have found that when we have too much information, we become subject to “brain paralysis” and can’t make a decision at all. Make sure that you have a diversity of ideas in the room, but be aware of information overload.
Another finding on the psychology of decision-making is that we have a desire to avoid uncertainty. In one study, college students were given the opportunity to get a deal on a trip to Hawaii. They were also told that they would learn how they did on an important exam before they had to decide. The result: 54% of those who were told they passed said they would go to Hawaii, while a similar percentage, 57%, of those who failed said they would go. The outcome of the exam, pass or fail, seemed to have little influence on the decision to purchase the vacation package. However, when students were told that they would not receive the exam information for several days, the majority of students said that they would wait for the exam results before deciding on the vacation purchase, even though previous results suggested the exam results had negligible impact on the decision. Ask yourself if waiting for additional information is actually relevant to the decision at hand, or if it is creating a false sense of security and certainty.
We also tend to hold certain biases about the information we receive. One way we do this is we allow the first information we gather to influence our subsequent thinking. An HBR article on decision-making gives this example: in projecting sales figures, past sales volumes are often used as a starting point. This approach can end up giving too much weight to past events, which may or may not be relevant, and not give enough consideration to other factors. We also tend to have an “immediacy bias” so that we also give more weight to most recent information. So the email or text you receive right now is of more relative importance than one you received an hour ago. What seems urgent and immediate can outweigh what is actually important. When evaluating all the information at hand, be aware of these biases to ensure that you are not giving certain information more or less credence than appropriate.
As a leader, you can’t move your team forward without making good decisions. By understanding how we make decisions, you can remove roadblocks and biases that affect your decision-making process and improve your confidence in the decisions you make.