Red flag on the beah
Ideas for Leaders #028

Avoiding Bad Decisions: ‘Red Flags’ and Reflection

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Key Concept

Decision-making can be understood better with an awareness of the brain processes involved in it. There are certain ‘red flag’ conditions that can lead to distortions in judgement, in turn leading to bad decisions being made. The authors provide examples of where this has been the case, and highlight safeguards that can be adopted to avoid them.

Idea Summary

Decision-making is at the heart of all leadership. Sometimes leaders make good decisions, but sometimes they make less good decisions. The authors set out to understand why bad decisions are made, and what causes them. They propose that in certain situations, the brain processes that normally get us to good decisions, lead us instead to less good decisions.  As such, there are two processes we need to understand: pattern recognition and emotional tagging.

  • Pattern recognition: this is the complex process that integrates information from many parts of the brain. Our brain makes guesstimates and fills in gaps based on experience, allowing us to function with incomplete information. This is mostly done unconsciously and we either recognise something or we do not.
  • Emotional tagging: this is the process by which emotional information attaches itself to the thoughts and experiences stored in our memories, telling us whether to pay attention to something or not, and what sort of action we should be contemplating.

Based on the processes above, the authors highlight four ‘red flag’ conditions that are likely to lead to distortions in the judgments executives make:

  1. Misleading experiences: these are unfamiliar situations where leaders may think they recognize something, when actually they do not.
  2. Misleading prejudgements: this is when thinking has been primed before a situation is evaluated, by previous judgement or decisions made that connect with the current situation.
  3. Inappropriate self-interest: this a very powerful and often unconscious condition, such as prescriptions a doctor may write that is influenced by favoured drug companies.
  4. Inappropriate attachments: an example of this is the attachment that might be felt to colleagues or a business when considering cost reductions.

Throughout the article, they cite examples where companies have fallen victim to one or more of the above red flag conditions.

Business Application

The authors urge all those involved in important decisions to consider whether Red Flags exist. If they don’t, decisions perhaps need fewer checks and balances. But if they do, the decisions with the highest stakes should be protected with robust safeguards.

They group the safeguards that can reduce the risk of red flag conditions leading to bad decision making into four categories:

  1. Experience, data, and analysis: different ways of collecting data and broadening experience can be considered, such as market research, discussions with key customers, bringing in consultants, etc.
  2. Debate and challenge: from simply discussing an issue with a colleague to forming a decision group, creating valuable debate can help challenge biases.
  3. Governance: strengthening the governance process by, for example, setting up a special subcommittee to review decisions in detail can help where there is resistance to the above safeguards.
  4. Monitoring: where there is a risk that all of the above safeguards are insufficient the monitoring process can be strengthened by, for example, setting clear milestones, adjusting strategy, etc.

However, the authors also acknowledge that inevitably, decisions will often still be based partly on the judgment and gut instinct of a senior decision maker—particularly if they are not major strategic decisions. Nevertheless, they advise leaders that are prepared to be more reflective and are part of a decision process that they can identify Red Flag conditions in advance of the decision. They can then apply safeguards to the decision process.

Those working on their own can use some simple tests to check whether or not their gut instincts are likely to lead you are astray.  If they are it may be wise to involve someone else in the decision. 

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Authors

Institutions

Source

Idea conceived

  • 2011

Idea posted

  • January 2013

DOI number

10.13007/028

Subject

Real Time Analytics