I liked this two-liner from historian Niall Ferguson in yesterday’s Observer:
We historians are increasingly using experimental psychology to understand the way we act. It is becoming very clear that our ability to evaluate risk is hedged by all sorts of cognitive biases. It’s a miracle that we get anything right.
If you run through this Wikipedia list of cognitive biases, you will probably have seen most of them at some point in your career. If I had space, I could give you specific examples from organisations I have worked in of just about every cognitive bias on that page.
My favourite is the self-serving bias; the belief that success is due to your personal brilliance while failure is put down to factors beyond your control.
A couple of years ago, I was talking to a senior executive at a well known international company about the shock of the sudden drop in his firm’s perforamce. He explained:
When the company was doing so well we told ourselves that it was because we were all outstanding business leaders. The truth was that we had a product that almost sold itself because of what our predecessors had done. We were drinking from wells that other people had dug and we didn’t dig any new ones ourselves. Now that competition is more fierce and the public has, to an extent, turned against us, we realise that we are not as good as we thought we were.
He at least had the awareness to be able to recognise the self-serving bias of the earlier years for for what it was and to realise that he and his colleagues needed to do something different. All too often, executives carry on doing what has worked in the past, in the conviction that they are just such talented business leaders, only to crash and burn as they fail to see the changing circumstances.
Also in yesterday’s Observer, Simon Caulkin identified a very topical example of self-serving bias; “the chilling belief of City traders in their own superiority” even after the economic downturn which their bad decisions brought about. He goes on to argue that it is fallacious to apply theories of evolution to organisations because, in many cases, “bad management is driving out good”.
As I said in a previous post, the great insight of evolutionary theory was that the characteristics which equip a species for survival are passed down through the generations, multiplying and thus strengthening that species as time goes on. This just doesn’t happen in organisations. Because they are aggregates of human behaviour, they are prone to keep repeating the same mistakes and, even when they get things right, they can’t always repeat that success. A lot more business success is down to good luck than corporate bosses, hiding behind their self-serving cognitive biases, would have you believe.
As Ferguson says, when you look closely at what actually happens in organisations, it’s amazing that so much turns out well.