Leaders: Prevent bad decision-making by becoming a 'decision architect'

Making mistakes is a part of being human, and completely eliminating mistakes is impossible. However, leaders can act as "architects" to change the environment in which decisions are made to steer people toward choices leading to the best possible outcomes, according to the Harvard Business Review.

The approach for structuring work to encourage good decision-making includes five basic steps.

1. Understand how people make decisions. Humans use automatic, instinctive and emotional responses, as well as logical and deliberate thought processes to make decisions, according to HBR. While in many cases relying on instinct leads us to conclusions with little effort, these automatic responses could lead us in the wrong direction. Our more methodical and deliberate system of thinking helps inform us when our instincts may be wrong or when our emotions have clouded our judgement. Too often, however, we allow our emotions and intuitions to rule, resulting in poor decisions, according to HBR. While our instinctual side should not be fully suppressed, it should be weighed against other factors to keep it in check.

2. Identify if behavioral issues are responsible for poor decision-making. According to HBR, managers need to determine whether behavioral economics tools can be effectively employed to correct issues. For example, certain problems can be resolved by changing the way people understand and respond to a situation, while others are "fundamentally technological in nature." These issues are unlikely to be solved by attempting to change people's behavior.

Managers may also seek to learn if people are acting in ways that don't benefit their best interests. According to HBR, behavioral economic tools are most effective in situations where they encourage people to make choices that are aligned with their best interest.

3. Determine underlying causes. There are two predominant causes of poor decision-making, including insufficient motivation and cognitive biases. According to HBR, to determine which behavior is causing the issue, leaders can assess whether the problem is the result of people's failure to take action. If so, motivation is the likely culprit. If a leader determines people in the organization are taking action in ways that introduce systematic errors into the decision-making process, the problem is tied to cognitive biases. Some common cognitive biases include excessive optimism, overconfidence, confirmation bias, groupthink, egocentrism, loss aversion, escalation of commitment and controllability bias.

4. Redesign the decision-making context to alleviate the negative impacts of biases and lack of motivation. Once leaders have diagnosed the root cause of poor decision-making, they can start designing a solution. According to HBR, two effective solutions are choice architecture and nudges. With choice architecture, the goal is to improve people's decision-making by influencing their context — i.e., by thoughtfully structuring how information and choices are presented to them. In this strategy, companies can "nudge" employees toward a certain direction without taking their decision-making ability away.

Altering the choice environment can come in the form of varying the order in which options are presented, changing the wording used to describe them and carefully choosing defaults, according to the report.

Leaders can motivate underperformers by emphasizing the downside of not taking action when an opportunity presents itself. For example, in sales, bringing in a new group of sales talent evokes a "man on the bench" effect, which functions as a motivator by clearly conveying the possibility that underperformance can lead to losing one's job or bonus.

According to HBR, various organizational processes are unnecessarily complex, which can lower motivation or increase likelihood for cognitive biases. By reforming processes, leaders can reduce the risk of this occurring.

Additionally, transferring more accountability to individuals encourages more careful thinking and better decision-making outcomes, because they will be more likely to be aware of and eliminate bias.

5. Test the solution. After managers have determined the underlying problems associated with poor decision making and devised a solution, it is important to test the solution vigorously to make sure it is effective. To test the solution, the desired outcomes resulting from decision making should be specific and measurable, according to HBR.

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