By Gerald Walsh ©
Have you ever wondering how so many intelligent people could have been swindled out of billions of dollars by Bernie Madoff? How so many well-educated investors, analysts and bankers could have been duped by the now-convicted criminals who ran Enron? How so many wise world leaders could have be convinced that weapons of mass destruction existed in Iraq?
Which begs a further question: might well-educated, balanced, intelligent people be capable of making bad decisions – just like everyone else?
The evidence seems to be over-whelming that the answer is ‘yes.’ But how can this be? Here are four possible reasons why smart people make irrational decisions:
Blinded by success
Bill Gates once said that “success is a lousy teacher as it seduces people into thinking they can’t lose.” Now, that’s a smart observation. And, nowhere was this more evident than in the aftermath of the heady dotcom days, where instant millionaires cashed out and, believing they were invincible, invested in other ventures only to come crashing down to earth with a loud thud when they lost everything. Success does have a way of blinding people into irrational decision-making.
No devil’s advocate
I have discovered that many leaders often surround themselves, quite inadvertently, with people who agree with them all the time. It’s easy to understand how this can happen. We all tend to be attracted to people who think like us. We enjoy having energetic and optimistic people around us. In a business context, when a new idea is introduced, we’d far rather talk about why it will work, than why it won’t. In fact, we dismiss naysayers, labelling them as pessimists or not team players.
The problem is when a leader has an idea, no one seriously questions the wisdom of it. People tend to adopt the role of ‘yes men.’ No one acts as the dissenter. No one plays the role of devil’s advocate – arguably the most valuable function leading to good decision-making. Once consensus starts to build, it very difficult to change direction. In the absence of a constructive feedback loop, leaders get lulled into believing their idea is sound. Even though the opposite might be true.
Aversion to failure
Let’s face it. No one likes to fail. So much so that in our society we see it as an embarrassment, something we would go to great lengths to reverse or hide from friends and even family. Think of a gambler who loses $500 in the first few minutes. But rather than cutting his losses and going home, he refuses to accept the loss, keeps on playing, and ends up losing $2,000. Or a business owner of a start-up who, fearful of losing his investment continues to blindly pursue his passion, even as losses continue to climb, and eventually runs out of money and credit.
Sometimes we become so eager to make up for a loss that we become oblivious to the continued risks we are taking. This is irrational behaviour.
Stubbornly keeping first impressions
Have you ever purchased a bottle of wine solely because of the attractiveness of the label? Or assumed a restaurant with the most expensive menu was the highest-quality one? Most likely you have.
We all have a natural tendency to form first impressions of people, ideas or things based on a variety of influences like appearance, price and personality. The problem arises when we refuse to reconsider those judgments once we’ve made them. We continue to insist the wine tastes good, even though we are disappointed. Or the restaurant is first-class, even though the service is abysmal.
Nowhere is this mistake made more often than in the interviewing process. My experience suggests that the ratings managers initially give candidates during the interview process rarely correlate with how well these candidates perform on the job.
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No one is immune to bad decision-making. Regardless of position, education or qualifications, everyone is susceptible to irrational behaviour from time to time. To avoid falling into those traps and suffering the consequences, we should all recognize our own biases and tendencies and by doing so develop an understanding of where the risks lie. Only then will we be able to approach decision-making systematically and rationally.
I would like to receive your comments and questions about this topic. Please email me at email@example.com and I will respond to you.
Gerald Walsh is an executive recruiter, career coach, public speaker and writer. During a 25+ year career, he has interviewed more than 10,000 job candidates, completed hundreds of successful searches for a range of organizations and guided many individuals – from young professionals to senior executives – to successful career change. He is the author of “PINNACLE: How to Land the Right Job and Find Fulfillment in Your Career.” You can follow Gerry on Twitter @Gerald_Walsh and LinkedIn