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Fast and Efficient Decision-Making

Fast and Efficient Decision-Making

According to economist Richard Thaler and legal scholar Cass Sunstein, the picture that emerges from all the known cases of limited human rationality “is one of busy people trying to cope in a complex world in which they cannot afford to think deeply about every choice they have to make.” And so people easily make irrational choices.

 

This affliction is not without its fixes. We remain able to change our environment by creating institutions that effectively trick our brains into making reasonable decisions – that is, decisions which do not go against our own long-term preferences, and to which most of us could agree.

 

Corporations have a notable capacity to create work environments that encourage employees to perform their tasks in the most efficient way possible. They do this by allowing them to internalize efficient routines and heuristics, and by implementing what could be called an appropriate ‘choice architecture’, a term I here borrow from Thaler and Sunstein.

 

Heuristics are much like guidelines or rules of thumb. For example, I tend to stick to a personal rule according to which 80% of my time should be spent on short-term priorities, while 20% should consist of improving my tools and my work processes for long-term benefit.

 

This is what a heuristic is: an internalized rule for reacting to common situations, in this case the issue of how to allocate my work time. There are many such 80/20 rules out there. Heuristics do not work in every case, but they work most of the time. My time-allocation heuristic reflects the reality of the startup I work for, and it works: I do not have to continually reconsider or strategize about the time I spend.

 

Meanwhile, the purpose of choice architecture is to facilitate rational decision-making by agents that are limited in their ability to do so. People do not have the capacity to carefully think through every decision they make, so structures must be developed to frame and support fast decision-making. Here are a few examples on how this could be achieved in an organizational setting:

 

Reduce information overload. Information must continually be filtered and synthesized as it is shared and communicated throughout the organization. Efficient managers and employees have neither the capacity nor the time to process everything that goes on everywhere. They will use whatever information they have to make the best out of any given situation. In order to avoid faulty decisions made on the run, people need limited but reliable information. This usually goes for all levels of management.

 

Facilitate decision-making over time. Individual biases in favor of short-term gains are also present inside organizations. For instance, how does a manager make sure he does not overspend on some immediate promotional opportunity? Such errors can be mitigated by systematically drawing attention to the future outcomes of decisions and by emphasizing second-best options.

 

Create reminders and checklists. Confirmation bias, anchoring, and loss aversion are particularly hard to overcome, as we are continually affected by these biases – even when we consciously try to avoid them. While it is impossible to entirely remove their effect, it might be a good thing to keep a few checklists in reach for important decisions.

 

Make sure new ideas are exposed to critical appraisal. In one of his most recent books on groupthink, Sunstein observes that while positive, enthusiastic, happy people will tend to attract the most attention and transmit their contagious optimism to others, groups may benefit from maintaining the presence of some more anxious and critical people, as these are the most likely to cut through groupthink psychology (precisely because they say what they fear).

 

Truth be told, there is a whole bunch of cognitive biases to which our everyday decision-making can fall victim. It would be a herculean task to counteract all of them, but it certainly is possible to design an organization that minimizes the impact of the most serious ones.

 

 

More articles from Ludvig:

> The Benefits of Slowing Down

> The Case for Tinkering

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