Envision the following situations: A board of directors considers acquiring a competitor. A marketing team decides whether to launch a new product. A venture capital investment committee chooses among an array of startups to fund.
All those strategic decisions share a common feature: They are evaluative judgments. To make such tough calls, people must boil down a large amount of complex information to either (1) numerical scores for competing options or (2) a yes-no decision on whether to choose a specific path. Of course, some management decisions are made without weighing quite so much information. But strategic decisions tend to involve the distillation of complexity into a single path forward.
Given how unreliable human judgment is, all evaluations are susceptible to errors. These errors can stem from known cognitive biases — or they can be random errors, sometimes called “noise.” Unreliability in judgment has long been recognized and studied, particularly in the context of decision-making about hiring. We draw inspiration from that body of research and experience to suggest a practical, broadly applicable approach to reducing errors in strategic decision-making. We call it the Mediating Assessments Protocol (MAP), and we’ll describe it here, after discussing the underpinning research. (This research was supported by an Australian Research Council Discovery Grant to coauthor Dan Lovallo.)
Strategic Options Are Like Job Candidates
The body of research on the job interview, the most common tool for employee selection, contains a wealth of information about the accuracy of evaluative judgments.1 Most companies still use traditional (unstructured) interviews to make a global evaluation. The interviewer starts with an open mind, accumulates information about the candidate, and then reaches a conclusion.
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2. J. Dana, R. Dawes, and N. Peterson, “Belief in the Unstructured Interview: The Persistence of an Illusion,” Judgment and Decision Making 8, no. 5 (September 2013): 512-520; and D.A. Moore, “How to Improve the Accuracy and Reduce the Cost of Personnel Selection,” California Management Review 60, no. 1 (November 2017): 8-17.
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5. D. Kahneman, Thinking, Fast and Slow (New York: Farrar, Straus and Giroux, 2011).
6. C.R. Sunstein and R. Hastie, Wiser: Getting Beyond Groupthink to Make Groups Smarter (Boston: Harvard Business Review Press, 2015).
7. R.S. Nickerson, “Confirmation Bias: A Ubiquitous Phenomenon in Many Guises,” Review of General Psychology 2, no. 2 (June 1998): 175-220.
8. A. Tversky and D. Kahneman, “Judgment Under Uncertainty: Heuristics and Biases,” Science 185, no. 4157 (Sept. 27, 1974): 1,124-1,131.
9. D. Kahneman, A.M. Rosenfield, L. Gandhi, and T. Blaser, “Noise: How to Overcome the High, Hidden Cost of Inconsistent Decision Making,” Harvard Business Review, no. 10 (October 2016): 36-43.
10. J. Levashina et al., “The Structured Employment Interview.”
11. D. Kahneman, Thinking, Fast and Slow.
12. L. Bock, Work Rules! Insights From Inside Google That Will Transform How You Live and Lead (London: Hachette U.K., 2015).
13. A. Tversky and D. Kahneman, “Judgment Under Uncertainty.”
14. D. Kahneman, Thinking, Fast and Slow.
15. O. Sibony, D. Lovallo, and T.C. Powell, “Behavioral Strategy and the Strategic Decision Architecture of the Firm,” California Management Review 59, no. 3 (May 2017): 5-21.
16. D. Kahneman et al., “Noise.”
i. D. Lovallo and D. Kahneman, “Delusions of Success: How Optimism Undermines Executives’ Decisions,” Harvard Business Review 81, no. 7 (July 2003): 56-63.