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In the early 1990s, a Fortune 100 company contemplated making a sizable investment to manufacture and distribute a core product in Asia. Although the project’s champion knew little about Asia, he was convinced he could succeed there just as he had in the United State. In making his judgment, he overlooked financial, operational and strategic information that contradicted his views. Senior executives, relying on the company’s U.S. experience, gave the go-ahead. After the resulting debacle and much soul searching, managers realized that they had let themselves be misled by their untested assumptions.
Such problems are not new, but in today’s world, they can be fatal. Rapid advances in information and production technologies have combined with global expansion and competition to create a business environment in which change is the norm.1
There’s nothing wrong with change. Classic management texts insist change is necessary for business survival and exhort executives to abandon their organizational isolationism — and their naive belief in environmental stability and homogenous, conflict-free workplaces.2 In dynamic internal and external business environments, leaders must be able to interpret cues and make decisions.3 But decision making is increasingly complex and success uncertain. Smart choices are often incompatible with existing knowledge and past experience, so managers may feel they are traveling without guideposts.4
Decision making is an art and a science, with no simple rules. To ager can handle an expatriate assignment, for example, a decision maker might need to use intuitive assessment in addition to analytic tools and research. Not surprisingly, increasing numbers of companies invest in programs to help managers improve intuitive judgment.
Although intuitive judgment has benefits, mounting evidence suggests that it often runs contrary to rational thinking, with managers’ confidence in their judgments and predictions far exceeding objective accuracy rates.5 Also, objectively irrelevant factors may influence choices. For example, some research shows that policy decisions based on numbers of jobs saved are often different from decisions based on numbers of jobs lost. Other research demonstrates that members of negotiating teams believe they have more-powerful bargaining positions than do solo counterparts, even when the only difference is the number of negotiators at the bargaining table.6 Most important, people who are unaware of the problems with intuitive judgment fail to compensate for it in their decision making.
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2. R. Nolan and D. Croson, “Creative Destruction: A Six-Stage Process for Transforming the Organization” (Boston: Harvard Business School Press, 1995); R. D’Aveni, “Hypercompetition” (Toronto: Free Press, 1994); R. Moran and J. Riesenberger, “The Global Challenge” (London: McGraw-Hill, 1994); and C. Prahalad and Y. Doz, “The Multinational Mission” (New York: Free Press, 1987).
3. R. Daft and K. Weick, “Toward a Model of Organizations as Interpretation Systems,” Academy of Management Review 9, no. 2 (1984): 284–295; and K. Weick, “Transforming Management Education for the 21st Century” (paper presented at the Annual Meeting of the Academy of Management, Chicago, Aug. 22, 1999).
4. P. Vaill, “Managing as a Performing Art: New Ideas for a World of Chaotic Change” (New York: Jossey-Bass, 1989); P. Senge, “The Fifth Discipline” (New York: Doubleday Currency, 1990); and C. Handy, “The Age of Paradox” (Boston: Harvard Business School Press, 1994).
5. D. Messick and M. Bazerman, “Ethical Leadership and the Psychology of Decision Making,” Sloan Management Review 37 (winter 1996): 9–22; J.E. Russo and P. Schoemaker, “Managing Overconfidence,” Sloan Management Review 33 (winter 1992): 7–17; M Bazerman and H. Farber, “Analyzing the Decision-Making
Processes of Third Parties,” Sloan Management Review 26 (fall 1985): 39–48; M. Bazerman, K. Morgan and G. Loewenstein, “The Impossibility of Auditor Independence,” Sloan Management Review 38 (summer 1997): 89–94; and A. Tversky and D. Kahneman, “Availability: A Heuristic for Judging Frequency and Probability,” in “Judgment Under Certainty: Heuristics and Biases,” eds. D. Kahneman, P. Slovic and A. Tversky (Cambridge: Cambridge University Press, 1982), 163–178.
6. L. Thompson, E. Peterson and S. Brodt, “Team Negotiation: An Examination of Integrative and Distributive Bargaining,” Journal of Personality and Social Psychology 70 (1996): 66–78.
7. S. Brodt and L. Ross, “The Role of Stereotyping in Overconfident Social Predictions,” Social Cognition 16 (1998): 225–252; and L. Ross and R. Nisbett, “The Person and the Situation: Perspective of Social Psychology” (New York: McGraw-Hill, 1991).
8. L. Ross, D. Greene and P. House, “The False Consensus Effect: An Egocentric Bias in Social Perception and Attribution Processes,” Journal of Experimental Social Psychology 13 (1977): 279–301.
9. B. Katz and F. Allport, “Students’ Attitudes” (Syracuse, New York: Craftsman Press, 1931).
10. S. Brodt, “A Truly False Consensus Effect: Examining the Heuristic Value of Self-Knowledge in Employment-Interview Judgments,” working paper, Duke University, Fuqua School of Business, Durham, North Carolina, 1999.
11. Ross, “The False Consensus Effect,” 279–301; S. Sherman, C. Presson, L. Chassin, E. Corty and R. Olshavsky, “The False Consensus Effect in Estimates of Smoking Prevalence: Underlying Mechanisms,” Personality and Social Psychology Bulletin 9 (1983): 197–207; and G. Marks and N. Miller, “The Effect of Certainty on Consensus Judgments,” Personality and Social Psychology Bulletin 2 (1985): 165–177.
12. Sherman, “Smoking Prevalence,” 197–207.
13. Tversky, “Availability,” 163–178; and J. Krueger, “On the Perception of Social Consensus,” Advances in Experimental Social Psychology 30 (1998): 163–240.
14. R. Nisbett and L. Ross, “Human Inference: Strategies and Shortcomings of Social Judgment” (Englewood Cliffs, New Jersey: Prentice-Hall, 1980).
15. M. Kernis, “Need for Uniqueness, Self-Schemas and Thought as Moderators of the False-Consensus Effect,” Journal of Experimental Social Psychology 20 (1984): 350–362; and Marks, “The Effect of Certainty,” 165–177.
16. Krueger, “Social Consensus,” 163–240.
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18. M. Zuckerman and R. Mann, “The Other Way Around: Effects of Causal Attribution on Estimates of Consensus, Distinctiveness and Consistency,” Journal of Experimental Social Psychology 15 (1979): 582–597; T. Gilovich, D. Jennings and S. Jennings, “Causal Focus in Estimates of Consensus: An Examination of the False Consensus Effect,” Journal of Personality and Social Psychology 45 (1983): 550–559; and Marks, “The Effect of Certainty,” 165–177.
19. T. Gilovich, “Differential Construal and the False Consensus Effect,” Journal of Personality and Social Psychology 59 (1990): 623–634; and Ross, “The Person and the Situation.”
20. J. Krueger and R. Clement, “A Truly False Consensus Effect: An Ineradicable and Egocentric Bias in Social Perception,” Journal of Personality and Social Psychology 67 (1994): 596–610.
21. L. Festinger, “Informal Social Communication,” Psychological Review 57 (1950): 271–282; and L. Festinger, “A Theory of Social Comparison Processes,” Human Relations 7 (1954): 117–140.
22. C. Wetzel and M. Walton, “Developing Biased Social Judgments: The False-Consensus Effect,” Journal of Personality and Social Psychology 49 (1985): 1,352–1,359.
23. S. Sherman, C. Presson and L. Chassin, “Mechanisms Underlying the False Consensus Effect: The Special Role of Threats to the Self,” Personality and Social Psychology Bulletin 10 (1984): 127–138.
24. R. Dawes, “Statistical Criteria for the Truly False Consensus Effect,” Journal of Experimental Social Psychology 25 (1989): 1–17; and Brodt, “The Role of Stereotyping,” 225–252.
26. D. Hilton, R. Smith and M. Alicke, “Knowledge-Based Information Acquisition: Norms and the Functions of Consensus Information,” Journal of Personality and Social Psychology 55 (1988): 530–540.
27. M. Alicke, “Global Self-Evaluation as Determined by the Desirability and Controllability of Trait Adjectives,” Journal of Personality and Social Psychology 49 (1985): 1,621–1,630; N. Tabachnik, J. Crocker and
L. Alloy, “Depression, Social Comparison and the False-Consensus,” Journal of Personality and Social Psychology 45 (1983): 688–699; and Kernis, “Need for Uniqueness,” 350–362.
28. Krueger, “Truly False Consensus,” 596–610.
29. Krueger, “Perception of Social Consensus,” 163–240.
30. S. Brodt and C. Tinsley, “The Role of Frames, Schemas and Scripts in Understanding Conflict Resolution Across Cultures,” under review at an academic journal.
31. R. Cross and A. Yan, “Planned and Emergent Structure: Process and Outcome of a Successful Reengineering Effort,” 1999, under review at an academic journal.
32. D. Schacter, “Searching for Memory: The Brain, the Mind and the Past” (New York: Basic, 1996); F. Bartlett, “Remembering: A Study in Experimental and Social Psychology” (London: Cambridge University Press, 1932); and E. Loftus, D. Miller and H. Burns, “Semantic Integration of Verbal Information into Visual Memory,” Journal of Experimental Psychology: Human Learning and Memory 4 (1978): 19–31.
33. G. Stalk and T. Hout, “Competing Against Time: How Time-Based Competition Is Reshaping Global Markets” (New York: Free Press, 1990); and M. Treacy and F. Wiersema, “The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market” (New York: Addison Wesley, 1995).
Related books for the reader interested in pursuing the topic of projection include James G. March’s 1994 “A Primer on Decision-Making: How Decisions Happen” and Thomas Gilovich’s 1993 “How Do We Know What Isn’t So? The Flexibility of Human Reason in Everyday Life” — both Free Press publications. Also recommended is “Decision Traps: Ten Barriers to Brilliant Decision-Making and How to Overcome Them,” by J. Edward Russo and Paul J.H. Schoemaker, a 1990 Fireside Press book. Two McGraw-Hill books are particularly useful: “The Psychology of Judgment in Decision Making,” by Scott Plous, published in 1993, and Lee Ross and Richard Nisbett’s 1991 “The Person and the Situation: Perspectives of Social Psychology.” Also, the Society for Judgment and Decision Making has a Web site at www.sjdm.org.