Brain Blunders in the New Economy

By | February 1, 2012

At the speed with which decisions are being made in this economy, have you ever stopped to think how you are making those decisions in your mind? Studies have shown that we tend to have a behavioral bias that may actually prevent us from making the right decisions. It’s almost Pavlovian in how we respond when something triggers one of these mental blocks.

Brain blunders happen to every one of us when making some decisions. The following five “mental blocks” can be the cause of why we make a poor decision. Do any of these ring a bell with you?

1. Overconfidence

When we have done something the same way with great repetition and success, we get to the point we assume the outcome. When the expected outcome doesn’t happen, we are shocked and sadly tend to try the same thing again even when it didn’t work the first time.

Some marketing managers still believe print ads are the best way to reach their customers because they have been running print ads for decades. If your target demographic still matches newspaper reader demographics, that’s fine, but if you are targeting anyone under 40, your overconfidence is ignoring the results of your efforts.

2. Hindsight

What you’ve seen in the past will predict what you will see in the future. If I hear one more financial advisor tell me how the US rebounded from the Great Depression and that is why I should stay in the stocks I am in, I will scream. What happened in the 1940’s is not relevant to today, nor is the 1990s.

Can we learn from the past? Absolutely, but we can’t expect it to dictate our movements into the future. When Edison created the light bulb, society dramatically shifted its behaviors like never before in history. The Internet has created the same level of cultural shift. Driving your business while constantly looking in the rear view mirror will not help you to get where you want to go.

3. Familiarity

Studies show men typically have over 30 ties in their closet yet wear only ten of them. We tend to pick restaurants we go to for the one meal we enjoy there. We are creatures of habit and find comfort in the familiar. The same thing goes for our decisions. It’s easy and comfortable to make the same decisions over and over. But what if those decisions are no longer the correct choice? What if something better has come along?

We used to strive for customer loyalty, hoping our customers were seeking the familiar as in the TV show Cheers – “where everyone knows your name.” (Did you realize Cheers went off the air in 1993?)That was a great concept for its time. We are in a different time. People gravitate to the new and fresh, while familiar is being treated as the old and stale. Decisions can quickly become old and stale as fast as business moves in the new economy. Be careful “familiar” isn’t replacing “effective.”

4. Regret avoidance

A woman I know had a very bad experience at a Japanese steakhouse. She was enjoying a birthday dinner with friends when the chef intended on flipping a shrimp onto her plate and instead overshot and landed the shrimp into her shirt. She was mortified as everyone howled with laugher around her. Years later she refuses to ever go to any Japanese steakhouse again. She is avoiding the location of a regretful memory.

When we focus on bad outcomes, frequently we add regret to our decisions, when in fact the decision was not the problem. Driving drunk is a bad decision, regardless of outcome. Cheating on your taxes is a bad decision, regardless of outcome. Choosing a reputable restaurant is not a bad decision.

Be sure to separate bad decisions from bad outcomes. Focus on the decision, regardless of outcome. Making good decisions will lead to a trend of better outcomes.

5. Self-attribution

Have you ever met someone who believed everything in his life that went well was because of his choices and everything that went wrong was because of other people’s choices?  That is self-attribution. It’s difficult to make proper decisions when you are seeing the world though a self-attribution lens.

We all make good decisions and bad decisions. Throw in an element of random luck, and we get our outcomes. An understanding that no one is perfect, no one is always wrong, and we all live somewhere in between will help give you better clarity to making proper decisions.

So how do we remove all of this emotion from our decisions? We can’t; however, we can include other people with different perspectives in the process. All executives and especially CEOs need a logical mind to help them balance the emotion in decisions.

No longer is it necessary for the executive to make decisions with one mind; in fact, it is discouraged in today’s business world as quickly as decisions need to be made and as critical as they are at the speed of change in the new economy. Whether using a trusted consultant who isn’t steeped in the corporate culture or someone on your management team who has a good sense of logic over emotion, brain blunders can be avoided by using more than one brain.

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