Review of Left Brain, Right Stuff

Debashis Basu 23 January 2016

Why business leaders can’t learn from behavioural research

Cognitive biases leading to human misjudgement and errors have emerged as a major area of study over the past decades. Behavioural research experiments, under which humans have been put through systematic analysis and investigation under controlled and naturalistic observation, have shattered the illusion that our decision-making is rational. Biases, such as following the herd, overconfidence, fear, greed, etc, lead us to making gross errors in judgement all the time, no matter how sophisticated our knowledge base. The entire global financial crisis was a live example of such a misjudgement on a global scale. Our realisation, that irrationality of decision-making in certain circumstances is the norm, has spawned many interesting books, fetched Daniel Kahneman a Nobel Prize and led to even policy prescriptions to take advantage of our behavioural flaws buy nudging us to do the right things. (Britain has an official ‘Nudge Unit’ to steer citizens toward better choices).

In his 2007 book, The Halo Effect, Phil Rosenzweig addressed how our biases find their way into studies of business performance, leading us to glorify successful companies. His 2014 book, Left Brain, Right Stuff: How Leaders Make Winning Decisions, details the enormous influence of decision research in domains from finance to public policy but notes that business leaders haven’t taken advantage of it. The book explores the many reasons for this. For instance, while it is easy to condemn a decision that fails, it is hard for experts in decision-making to suggest what the business leaders should do in real-life situations, to avoid disastrous decisions.

Indeed, it is not possible to apply most of the experiments from which we learn about our cognitive biases, in high-stakes business situations such as a takeover or bidding for a big new project. These experiments (would you have $90 for sure or a 90% chance of getting 100% and 10% chance of nothing) are not only simplistic but also, we cannot alter the terms of the deal. If you could, the decision-making would become infinitely more complex—exactly what happens in the business world.

Also, what behavioural science suggests we do to improve ourselves is difficult for business leaders to apply. One idea is ‘deliberate practice’—improve yourself through action, feedback and adjustment. This can work for simple tasks of life, such as memory games or musical instruments, but it is tough to apply in business situations, since feedback from a crucial action can come years later. Rosenzweig has many real-life cases and advice on what to do in certain situations. They are all eye-opening and challenging. A very useful read.

Comments