Human emotions, biases, and delusions

Human psychology and studies of the human brain indicate that we are prone to creating false narratives that lead us to believe that we are in control of things when in fact we are not. In his groundbreaking studies, Jonathan Gifford describes this as follows:5

Our choices, it turns out, are driven by older instincts, emotions and drives, while what we take to be our ‘self’ gaily rationalises what we have done after the event.

Gifford provides several examples of how we can be blindsided by various phenomena such as stock-market bubbles, the dot-com bubble, epidemics, the collapse of large corporations, or a credit crunch. He concludes as follows:6

What we experience as rational decision-making is driven by impulses and urges of which we are barely aware: an overwhelming urge to take what is available now before someone else gets it; an inbuilt tendency to follow the herd; a strong sense ofwhat is equitable and fair; an instinct to trust our own group and to be hostile to outsiders... . These unexamined motivations are what cause us to be blindsided.

What Gifford essentially points out is that we are more driven by emotions than we may realize, and that the rational component of our thinking often only emerges when we attempt to retrospectively justify and rationalize events. In all other contexts, human beings are selfish, greedy, shortsighted, and prone to mass delusion.

This is also in line with the thinking of Nobel laureate Daniel Kahneman, who studies behavioral microeconomics. Kahneman states that “inconsistency is built into the design of our minds,"7 “our minds are susceptible to systematic errors,"8 and “over- confidence is fed by the illusory certainty of hindsight.”9

In many cases, individuals are either unaware or not fully aware of these mechanisms and, therefore, unable to combat biases in their thinking. Consequently, a halo effect emerges with the aim of rationalizing mediocre innovations ex post. With regard to innovation in the future, people make their stipulations based on what they are able to observe here and now.

This is also obvious from a study of the literature on strategic management where promotional titles such as In Search of Excellence, Built to Last, From Good to Great, and What Really Works indicate that a successful formula for running a company has

The halo effect

The tendency for the performance analysis of a company to refect only the overall results

The delusion of correlation and causality

Do we always know which thing causes what?

The delusion of single explanations

There is rarely one specif c factor that can explain everything.

The delusion of connecting the right dots

It is impossible to isolate the reasons for being successful, as most studies do not compare such organizations with less successful companies.

The delusion of rigorous research

The data may lack the required quality.

The delusion of lasting success

Sustainable formulae for success do not exist.

The delusion of absolute performance

Company performance is always relative.

The delusion of the wrong end of the stick

It may be true that successful companies pursue a focused strategy, but this does not mean that a focused strategy always leads to success.

The delusion of organizational physics

Company performance does not have the certainty of an immutable law of nature, so it cannot be predicted with the accuracy of the natural sciences.

been found. Essentially, these best-selling books suffer from a variety of business- related delusions of which the halo effect is the most important.10

The research behind the delusions listed in Table 2.1 highlights severe biases among company executives in relation to strategic management issues. The "halo effect” refers to a cognitive bias found among executives who will gladly attribute successful outcomes to their own performance and, conversely, hide business failures or even redefine them as successes. This is similar to the Dunning-Kruger effect - being ignorant of one’s own ignorance and, consequently, grossly overestimating one’s own skills and capabilities.11

With a focus on rebel ideas, Matthew Syed talks about “perspective blindness" as follows:

We are oblivious to our own blind spots. We perceive and interpret the world through frames of reference but we do not see the frames of reference themselves. This, in turn, means that we tend to underestimate the extent to which we can learn from people with different points of view.12

He even goes a step further by suggesting that human nature itself means that humans are likely to not only share each other’s blind spots but also to reinforce them. He terms this “mirroring.” When you are surrounded by people who reflect your picture of reality and whose picture you reflect back to them, it is easy to become overconfident in judgements and assessments that are factually incomplete or simply wrong.13

With emotions, overconfidence, bias, delusions, and mirroring operating within most humans, it is no surprise that innovation and outlier experiences encounter difficulties from time to time.

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