4 Biases Behind Stupid Decisions

Intelligence doesn’t eliminate bias. It makes you better at defending stupid decisions.

#1. Incentives distort judgment.

People learn what matters by noticing what gets rewarded.

“Perhaps the most important rule in management is ‘Get the incentives right.’” Charlie Munger

• Say teamwork matters. Reward individual achievement.
• Say quality matters. Reward speed.
• Say candor matters. Punish bad news.

People follow incentives more reliably than slogans.

Ask, “What behavior does our system reward?”

#2. First conclusions become prisons.

You remove doubt by reaching a decision quickly. The first answer seems right. Stupid decisions don’t seem stupid when they’re yours.

Once you decide, resistance congeals.

Quick conclusions become stubborn convictions.

Before defending your conclusion, ask: “What would prove me wrong?”

#3. Liking drives distortion.

We overlook faults in people we like. We overlook virtues in people we dislike.

Beware when your evaluation begins with, “I really like her,” or, “He drives me nuts.”

Judge contribution before chemistry.

#4. Your favorite tool makes you stupid.

“I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.” Abraham Maslow

Call it the “man-with-a-hammer tendency.”

• Coaches see coaching problems.
• Engineers see engineering problems.
• HR sees people problems.
• Finance sees financial problems.

Your strength becomes a weakness when you use it everywhere.

The Challenge

Become suspicious of certainty.

Before your next important decision, ask:

• What incentive is influencing us?
• What evidence contradicts us?
• Who do we like or dislike too much?
• What hammer are we holding?

The most dangerous leadership bias is the one that feels like good judgment.

What protects leaders from making stupid decisions?

This post is inspired by Charlie Munger’s Poor Charlie’s Almanack and his essay, “The Psychology of Human Misjudgment.”