This post originally appeared in Forbes.
Despite the rapidly expanding literature in behavioral economics and the popularity of some of its well-known concepts, it is surprisingly tricky to put conclusions from research into practical use. As the behavioral economic theories suggest, this challenge exists because decisions involve more than knowledge and rational thoughts. Interpersonal and cultural context and emotion play a role, though it’s difficult for some to accept.
Even the most aggressive people may deny that their ire is emotional.
Aaron, an executive responsible for risk in a financial firm, asserted that emotion had zero to do with his decisions. Yet, he was so enraged in a discussion of the effects of emotion and social context, he stood up and, with a red face and at high volume, yelled, “I am not emotional!” Despite his superior intellect, he wasn’t able to learn more about how people make decisions for two reasons. First, he believed he already knew everything. Second, his defensiveness was so powerful; he couldn’t participate in discussions of ideas other than his own. It’s no surprise that Aaron was known for causing blow-ups with colleagues and using intimidation to manage others. After too long a time, the CEO finally removed Aaron from the firm to the relief of many.
Aaron, and others like him, are not the norm. Unlike most people who can tolerate disagreement, they can become irritable, angry, or worse when their expertise is challenged. Unfortunately, this makes it nearly impossible for them to learn because the learning process isn’t only about adding to what we know. Sometimes, we must let go of what we thought was true but have new information that tells us it isn’t.
However, it can be difficult to let go of beliefs, even for people who aren’t easily provoked, like Aaron. This is especially true when colleagues argue against abandoning or even challenging, accepted knowledge. For example, the economist Richard Thaler, Ph.D., winner of a Nobel Prize, has been criticized by colleagues for his work, which challenges long-held economic theories.
Some decisions don’t need deliberate thought, like choosing what flavor ice cream to buy. Deconstructing a decision like what flavor to get would be tedious and take the fun out of it. However, when decisions involve significant risk, it is worth it to think about thinking and challenge our beliefs and assumptions. Frameworks, such as “Outside-in and Inside-out,” can be helpful.
Outside-in asks what outsiders think of your business. For example, one executive I worked with, Valerie, a banker, said, “Our customers don’t love us, but we seem to think we know what we’re doing. My team says all the right things, and I believe their intentions are good.” However, she admitted that she was annoyed by some people on her team who repeated phrases such as “customer experience” but didn’t understand it. She called this “The ontology of the parrot.” It would be funny if she weren’t right.
Valerie realized she needed to understand the perspective of people outside her organization. So she commissioned a study and included people within the bank but outside of her team as well as customers and suppliers. The results of the study gave her an outside-in view based on data.
Inside-out asks how you think others see you and your team. While feedback was gathered from outsiders, a similar process was launched for those inside her organization. The results showed that people didn’t think they were doing an excellent job for several reasons. The top three reasons given were scarce resources, inadequate technology, and inconsistent management. In addition, Valerie learned that people felt constrained by a bureaucratic culture that prevented them from offering ideas about how to improve.
The feedback indicated that, despite the assurances of her leadership team, others viewed the organization as careless and unresponsive. Once Valerie had this information, she needed to use it. She knew that asking for feedback but failing to do anything with it is worse than not asking. Valerie also recognized her responsibility for the situation. So instead of spinning the data, she decided to take the opportunity to show others that facing awful news is better than ignoring it, even when it is embarrassing.
Valerie’s approach proved effective to make specific improvements and started a practice that became widespread. Her team dubbed the procedure “Shutting down the parrot.” Not only was the method effective longer-term, but it had just enough humor in it to help everyone remember that decision traps happen to humans, even intelligent humans.
“If someone really is certain about something, they have almost certainly frozen their ability to change their minds when they need to.” Carol Tavris, Ph.D.
People in any role can over-rely on information that is no longer useful, without any intention or awareness. As a result, even very intelligent, successful people can step into traps that lead to poor decisions or serious mistakes. The best leaders do two things to minimize errors. First, they recognize their fallibility. Second, they utilize frameworks such as the “outside-in/inside-out” method to help them gather information, even if they think they already know the answer.