Behavioural Economics meets Groupthink
Groupthink is one of the most destructive organizational dysfunctions. Can Behavioural Economics help combat it?
It is widely believed that groups are more flexible and can tackle complex tasks more effectively than individuals. However, they can also end up making poor decisions, often ending up in a false consensus. Jerry Harvey famously coined the term Abilene Paradox, after he and his family went on a blisteringly hot and unpleasant trip to the town of Abilene, while none of them individually actually wanted to go! This ‘Groupthink’, as Irving Janis named it in 1972, is far more common than many advocates of teamwork are ready to admit.
Economics provides an intriguing insight to this an aberration. Conventional economics assumes that people act rationally and in their self-interest at all times. If all the necessary information is in the room when the decision is made, then each participant’s motivation should make it impossible to end up with an outcome that no individual wanted.
But it is Behavioural Economics that helps explain why this is rarely the case, and why such anomalies are more the norm than the exception. We all possess a large collection of biases, some of which are inherent in the way we think, some induced by the context. And we are often unwittingly under their influence when we make decisions.
Where are we going wrong?
Some issues occur at the individual level — our limited viewing angle, or our short run view of our best interest (how is your retirement planning?). But many others are caused by dysfunctions in organizational behaviour.
These organizational biases can dominate decision-making, and yet they are rarely considered in business. For example, hierarchical relationships in a team, or the sequence in which people speak in a meeting can have a disproportionate influence on the eventual decision. The result is that the range of decision options is not as diverse as it should be, that the decision is not robustly evaluated, or that the downsides of a course of action are rarely checked. Small wonder people end up in Abilene…
Thankfully behavioural economics can also help find ways to combat dysfunction in organizational decision-making.
What are the challenges?
Many problems in team decision-making can be blamed on a form of myopia. We may simply overlook all the possibilities and consider all the implications of a particular course of action. This blindness is in the first place individual: we all have a tendency to see things primarily from our own perspective, or we are attached to ideas in which we have already invested effort and resources.
Unfortunately, collective decision-making is liable to make things worse, rather than better. How come? We have strong psychological tendencies to build on shared knowledge, rather than add new, non-shared information. This leads to the kind of consensus bias the Abilene story illustrates. People generally find it hard to resist a deep desire to fit in and belong.
This power of the majority is remarkable: Solomon Asch conducted several famous experiments that illustrate this. We will often agree to something we believe is wrong, simply because a large majority thinks it is right. We fear loss of status in a group and prefer to stay silent, rather than upset the apple cart.
This produces predictable, systematic biases. For instance, the knowledge that is contributed first to a discussion is unduly favoured. Timur Karan and Cass Sunstein call this availability cascades: whatever is said first drives the discussion, to the detriment of any other ideas.
Nudging the group to greater effectiveness
In Nudge, Richard Thaler and Cass Sunstein describe small changes in the environment that make choosing the ‘right’ option easier. But in collective decision-making, following the undisciplined, dysfunctional way actually is the easy option. Could nudges make it easier to follow the right process — in particular one that helps
• minimize undue conformity, and
• prevent overly speedy consensus building?
The answer is yes. The fundamental nudge is to adopt an appropriate team decision-making process, and to make it the default for every situation — a sort of ‘team rule’. The team can of course still decide to deviate from part or all of the default process, but that must then be a deliberate decision.
The process itself must then be designed to address the most worst dysfunctional tendencies through well-chosen building blocks. Here are a few possibilities that can be used to offset the individual and collective biases in groups:
• Egocentric bias — if the team tends to stick too much to an internal perspective when exploring a particular option, formalize the viewpoints of other participants or stakeholders.
“What does it look like from a customer’s perspective?”
“What would a competitor do?”
“How would a supplier react to this?”
• Framing effect — even when a solid cost-benefit analysis is used, the interpretation of figures can depend a lot on how they are framed. Make multiple framings an explicit part of the process.
“What do the additional costs look like when compared to sales costs, rather than turnover?”
“Market share might go up, but what will happen to the margin?”
• Sunk cost bias — to reduce the risk that an option is chosen simply because a lot of resources have already been invested in it, describe the option from an outside point of view.
“How would a new owner or investor, who does not have that memory, look at the proposition?”
• Consensus bias — to counteract the natural tendency to seek quick agreement, prime the participants to think more critically. Starting a meeting with some simple exercises can help put everyone in a mindset that favours constructing a wider range of options from which to choose, and that encourages critical evaluation of shortlisted options.
Many more elements can either be included as a fixed component of the decision-making process, or be part of a toolbox to be dipped in when there is a specific need. Some can be adopted through the use of templates to capture ideas and to ensure systematic evaluation. Others can be embedded in the agenda structure of meetings, or in the role allocation of the participants. (Avoid a one-size-fits-all process, though. It is much better to adopt a process that fits the actual dysfunction as it is experienced, than one that is just based on generic theory.)
The key insight is to recognize that organizational dysfunction is in many ways very similar to the apparent ‘irrational’ behaviour of individuals. From a behavioural economics viewpoint you can reveal the underlying reasons for the dysfunction, and identify simple but very effective ways to counteract them.
More importantly, it will make sure your team doesn’t join the Harveys in Abilene… unless you really, really want to go there.
(This article was co-written with Rod Street.)
Further reading:
Making Dumb Groups Smarter by Cass Sunstein and Reid Hastie, as well as their book Wiser: Getting beyond groupthink to make groups smarter
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