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Cognitive Biases and Decision Making: Strategies for Start-up CEOs
“The eye sees only what the mind is willing to comprehend” Robertson Davies (Canadian Playwright)
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One of the top skills that are critical to future workers has been identified as behavioral skills. Not engineering, data science, coding.which probably AI can do better. What are behavioral skills – are they unique to a particular type of people – can they only be understood or mastered by some people? Well rest easy. While psychologists, social scientists and behavioral scientists have known about what afflicts behavioral skills – everyone is subject to systematic errors in judgment and decision making – also known as biases. They have like most humans used simple rules of thumb or heuristics to navigate through complex decisions, because that’s what human brains do. This puts less pressure on our brains.
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Does awareness of human biases improve our capability to identify and not fall into the same trap...? ...possibly...
Let’s try and understand this through a series of events that rocked the startup world a few years ago - the IPO of Wework. The Wework’s debacle of a 47billion $ valuation tumbling to 10 billion $ in 6 weeks raises some important points about those behind the initial decisions to value it at such astronomical levels. As GLAEC Chief Identity Hacker nee CEO Sallyann della Casa mentions in the BS Talks podcast “Its critical for CEO’s to have a full consciousness of their true North”. Adam Neuman decidedly had difficulty finding his ‘True North’. What he did have was an ardent supporter in the form of JP Morgan Chase, a board that is fully compliant with the wild demands of a maverick CEO, a large muscular fund that has been mopping up start ups from the get-go. It does not seem like any other ingredients were needed for this venture to become a success or now in hindsight a massive fail. Unfortunately, no one seemed to have noticed that a very important role of that of an ‘objective dissenter’ missing in this rather happy trio.
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What is an objective dissenter?
Objective dissenters would be like the management team, investors and others who objected to Marc Benioff’s attempt to purchase Twitter in 2016. Yes, before the space maverick Elon Musk decided to dip into coffers available to fund his $44 Billion buyout of Twitter (now X) Marc Benioff another accomplished CEO tried buying it out. In his book Trailblazer he talks about a sign or omen that made him change his decision to buy Twitter. According to Benioff he is driven by gut or intuition that his bets have always been right. The story goes that, while getting out of the car to attend meetings with investors and convince them of his $ 20 billion bet on Twitter, his massive 6-foot 5 inch frame tumbles to the asphalt. With a bleeding leg he presented his grand vision to his investors, however he decides not to double down on his decision to buy Twitter. While he credits this bad ‘omen’ of falling and hurting himself before the meeting to this decision, to other observers it may appear different. He avoided getting trapped by one of the most powerful biases that traps the best of us to believe that we are right – confirmation bias. Confirmation bias essentially sources from our search for meaning, coherence and forcing everything to fit into an interpretation of what you believe the world needs to be. Mark Benioff has his investors, teams and board to thank. Adam Neuman had no one around him who could reign in his thinking.
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Three or more things that Start-up CEO's can do:
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Startup CEO’s have a lot to be worried about and a to-do list that will read like a grocery list at the beginning of the month. Start up life is in both parts enviable and not – liberty, freedom and creativity that has to sit and thrive in the midst of chaos, clutter and confusion. There could not be better ingredients than that for start-up CEO’s to get trapped by the ever-present confirmation bias – looking for information that confirms beliefs that you hold close. So is there a solution to this problem. The first solution ofcourse is awareness. Are you aware that your brain seeks out information that confirms your existing beliefs and turns a blind eye to things that do not. If you do then you are already wiser. If not then now is the time to become aware of how your brain tricks you into these beliefs. Second, look for disconfirming evidence, dissenters and non intuitive evidence. Protect those who bring alternate points of view to the table, delay acting on your intuition – don’t wait to fall and cut your leg! Next, be willing to change or mind when new evidence is presented to you - be ready to update your beliefs. Confirmation bias makes you exceptionally confident about your closely held beliefs. As Adam Grant in his book Think Again suggest communicating strong beliefs with some uncertainty signals confident humility, signals curiosity and will lead to more nuanced discussions.
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Notes:
Nickerson, R. S. (1998). Confirmation bias: A ubiquitous phenomenon in many guises. Review of general psychology, 2(2), 175-220.