You’re About to Make a Terrible Mistake!

What if your decision-making process is less rational than you believe? Change how you decide before it’s too late.

1. Bias Cannot Be Banished, But It Can Be Managed

Bias isn’t something you can entirely escape, but acknowledging it is the first step toward addressing its effects. Bias often sneaks in when you allow subjective experiences to override objective facts, which can distort judgment, especially in critical business decisions.

Even giant organizations face this challenge. Take NASA, a massive, complex entity filled with individuals susceptible to different biases. Yet, NASA rose above individual errors by creating collective procedures to ensure sound decision-making. Businesses can adopt similar approaches.

Bias thrives in judgment-heavy environments, and many executives frequently overestimate their capacity to make sound strategic choices. In studies of executives, only 28% believed their companies made good decisions consistently. But, like NASA, organizations can counteract bias by structuring clear decision-making processes rather than relying on instincts.

Examples

• A business leader favoring personal preferences over evidence when considering a project
• NASA’s structured decision processes preventing disastrous outcomes
• Companies where coin flips work as well as executives’ "gut" strategies

2. Confirmation Bias Clouds Judgment

When people desire to believe a story, they actively seek evidence that supports their views and ignore facts that contradict them. This phenomenon, known as confirmation bias, can lead to disastrous outcomes.

Consider Elf Aquitaine, whose leaders fell for a hoax involving “oil-sniffing” technology, wasting a billion francs. Their desire to believe the solution to an oil crisis blinded them to counter-evidence. Decades later, prominent investors made the same mistake, falling for nearly identical fraudulent claims in California.

This bias doesn’t discriminate by intelligence or experience. It’s human nature to prefer familiar, affirming narratives. But businesses must create systems ensuring all perspectives are carefully weighed, even challenging ones.

Examples

• Elf Aquitaine losing a billion francs to an oil-sniffing scam
• California investors repeating the same mistake years later
• Organizations dismissing critical evidence to support pre-decided conclusions

3. Success Stories Are Rarely About One Person

We often associate major successes with singular figures, ignoring the teams, environments, and timing that played vital roles. This skewed focus, known as attribution error, overemphasizes individual actions.

Think of Steve Jobs and Apple. While Jobs symbolizes innovation, Apple’s success depended on thousands of employees and other factors like timing and market conditions. By focusing solely on one person’s genius, businesses miss the broader, often more repeatable reasons behind success.

Attempting to replicate success based on incomplete lessons—like emulating one feature of a competitor—can lead companies astray. Studying failure might yield more reliable lessons to avoid future blunders.

Examples

• Steve Jobs as a symbol eclipsing Apple’s collective efforts
• Misidentifying Apple’s Genius Bar as its primary success driver
• Businesses copying singular elements without understanding larger systems

4. Intuition Rarely Works in Strategic Decisions

Relying on intuition for strategic choices often backfires because business environments are usually unpredictable. Intuition thrives in stable settings with consistent cause-and-effect patterns, like poker—not in chaotic, high-stakes markets.

A classic example is Quaker Oats’ disastrous Snapple acquisition in the 1990s. Assuming it could replicate Gatorade’s success, the company relied on “gut feelings” instead of market data, losing billions. Strategic moves need rigorous analysis, not hunches.

Strategic environments lack the stable training grounds that enable intuitive mastery. Even highly experienced professionals often fare worse than random guesses in these uncertain scenarios.

Examples

• Quaker Oats’ overpriced Snapple buy becoming a cautionary tale
• Poker as a setting where intuition reliably works
• Studies showing experts performing worse than average people in dynamic predictions

5. Overconfidence Breeds Poor Outcomes

Confidence is an invaluable trait, but overconfidence can blind leaders to risks and alternative perspectives. This imbalance often leads to poor calls with devastating results.

Blockbuster Video’s dismissal of Netflix’s 2000 offer to partner is a prime illustration. Blockbuster’s CEO, John Antioco, believed Netflix’s online subscription model was unsustainable. Two decades later, Netflix dominates while Blockbuster is history—an epitaph for overconfidence.

Overconfidence also emerges in simple tasks. When participants in studies claim “90% certainty” for their answers, they’re wrong about 50% of the time. This misjudgment shows how frequently we overrate our accuracy.

Examples

• Blockbuster declining a $50 million Netflix partnership that grew into a $150 billion market giant
• Scientific studies revealing participants’ misplaced certainty
• Decision-makers ignoring warning signs due to inflated self-assurance

6. Rigid Processes Reduce Result Variability

Unpredictability in outcomes can sink your plans, but using methodical processes improves reliability. NASA exemplifies this with its systematic pre-launch procedures designed to account for risks.

In contrast, many businesses lack such rigor for critical decisions. A study of 1,048 investment deals showed that process quality determined 53% of variability, far outweighing financial analysis. Structured processes prevent human error and enforce consistency across outcomes.

By adopting frameworks like well-designed checklists or structured discussions, companies can equalize results and sideline bias-driven randomness.

Examples

• NASA’s launch checklists ensuring mission safety
• Business studies linking process rigor to investment success
• Companies systematizing lower-level decisions while under-preparing for strategic ones

7. Debate Drives Better Decisions

Encouraging diverse opinions and constructive disagreement strengthens decisions. While we naturally prefer consensus, open dialogue uncovers weaknesses in ideas and reduces bias.

Imagine planning a restaurant menu and asking only supportive friends for feedback. This limits perspective. Adding critics with varied preferences—even dissenters—helps refine your approach into something stronger.

Cognitive diversity rejuvenates groupthink-heavy meetings. Managers should not treat meetings as ceremonial but as opportunities to foster robust discussions leading to better results.

Examples

• Critics helping fine-tune restaurant concepts beyond a supportive circle
• Cognitive diversity addressing overconfidence in boardroom decisions
• Structured debates improving project assessment

8. Data Beats Gut Instinct

Data-driven approaches bring objectivity to tumultuous choices, reducing the influence of biases. Collecting and analyzing relevant metrics provides clarity in low-validity environments.

For instance, Tetlock’s studies revealed that even experts perform worse than chance without systematic strategies. Businesses using measurable criteria avoid the pitfalls of relying on feelings for organizational planning or investments.

Returning to predefined frameworks anchors discussions in reality, counteracting decision dynamics. This makes final outcomes less vulnerable to fleeting opinions.

Examples

• Using rigorous analyses to challenge and verify investment theses
• Tetlock’s evidence against expert forecasting in dynamic scenarios
• Real companies gaining stability through structured criteria

9. Learning From Failure, Not Just Success

Businesses often fixate on success stories, but there’s more to gain by studying others’ mistakes. Failure illuminates common pitfalls, offering lessons applicable across industries.

Snapple serves as a perfect case study of poor decisions resulting from overstated assumptions. By understanding “worst practices” and analyzing similar failures, companies refine strategies to avoid similar mistakes.

Shifting focus from shiny success narratives to darker histories creates a realistic roadmap for managing uncertainty and building resilience.

Examples

• Snapple’s acquisition warning against overpriced purchases
• Corporate postmortems revealing unchecked biases
• Risk managers analyzing negative outcomes over outliers in success

Takeaways

1. Design a decision-making process that includes diverse voices and challenges assumptions.
2. Use structured frameworks and criteria to guide both simple and strategic choices, ensuring consistency.
3. Regularly study failed decisions in your industry to learn lessons and avoid repeating mistakes.