Driving Dynamic Decision Making
Considering Evidence-Based Management
Prof Karin Sanders
School of Management Australian School of Business
EVIDENCE BASED MANAGEMENT
Agenda for this presentation:
1. Evidence based decision making: biases
2. Evidence based management: knowledge
3. How to balance time vs evidence
Articles:
– Kahneman, D. , Lovallo, D., & Sibony, 0. (2011);
– Rousseau, D.M. & Barends. E. (2011)
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Evidence based management:
://vimeo.com/58142921
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Evidence based management:
http://vimeo.com/58142921
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Decision making
“A cognitive, emotional and neuropsychological process that
involves thoughts, feelings and neurological functioning and
results in making a judgement or choosing from alternatives.”
Bounded rationality
• People are not purely rational: emotions, intuition, biases
• People do not have the time to follow the rational decisionmaking process in its purest form
Simon, Herbert. (1957). Models of Man: Social and Rational Mathematical Essays on
Rational Human Behaviour in a Social Setting
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Bias …..
• Bias is an inclination of temperament or outlook to present
or hold a partial perspective and a refusal to even consider
the possible merits of alternative points of view.
• People may be biased toward or against an individual, a
race, a religion, a social class, or a political party.
• Biased means one-sided, lacking a neutral viewpoint, not
having an open mind.
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Biases ……
Loss
aversion
bias
Seeing order in
randomness
Self interest
bias
Misinterpretation
of incomplete data
Attribution
error
Authority bias
Group think
Fallen in love bias
Prof Karin Sanders
Confirmation
bias
Biases / arguments in practice:
“I know that this system is (not) working”
“I completely trust my boss in his opinion”
“We always did it in this way” “I know a lot of colleagues having the same opinion”
“So many other organizations use this method”
“I cannot imagine that this is a good decision”
“I have a good feeling: we should make this decision”
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Headline … (1)
How to reduce the
effect of biases?
Prof Karin Sanders
Evidence based management:
accepting this kind of argument or not …
Rousseau & Barends (2011):
“it is all about an absence of a questioning mindset”;
start critical thinking
http://www.youtube.com/watch?v=9oAf3g5_138
(first five minutes)
“What are the elements of critical thinking?”
Prof Karin Sanders
Evidence based management:
“Is the practice of making organizational decisions that
incorporates the conscientious use of
1. own experiences,
2. organizational facts combined with
3. research from academics.”
EB-mgmt brings sources together (importance of
knowledge), how to get scientific results out, prepare
students and managers in a better way
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Headline … (2)
“When professionals have more knowledge (read more research
literature), companies have higher financial performance”
Terpstra & Rozell, 1997
• Lack of knowledge or
• Absence of using knowledge
Prof Karin Sanders
Sara L. Rynes, Amy E. Colbert, &
Kenneth G. Brown (2002).
“Leadership training is ineffective
because good leaders are born, not made.”
TRUE / FALSE
Prof Karin Sanders
Sara L. Rynes, Amy E. Colbert, &
Kenneth G. Brown (2002).
Companies that screen job applicants for values
have higher performance than
those that screen for intelligence
TRUE / FALSE
Prof Karin Sanders
Sara L. Rynes, Amy E. Colbert, &
Kenneth G. Brown (2002).
“On average, encouraging employees to participate in
decision making is more effective
for improving organizational performance
than setting performance goals.”
TRUE / FALSE
Prof Karin Sanders
Sara L. Rynes, Amy E. Colbert, &
Kenneth G. Brown (2002).
“Incompetent people benefit more from feedback
than highly competent people.”
TRUE / FALSE
Prof Karin Sanders
EVIDENCE BASED MANAGEMENT
Managers have other beliefs ….. so it is a lack of
knowledge
How to find a balance
between time to find more
evidence, reduce biases
and have a decision made
in time?
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REFLECTION ON THE CULTURE ……
1. More knowledge within the organization: open
culture, informal learning, lunches (discussing books)
2. Differences between own biases (hard to reduce) and
biases of other people (easier to reduce)
Imagine a decision has to be made ….
* ask your self;
* ask the recommenders
* ask about the proposal
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ASK YOURSELF ……
1
2
3
Check for selfinterested bias
Check for the
affect heuristic
Check for
groupthink
Review the
proposal with
extra care,
especially for
overoptimism
Rigorously apply Solicit dissenting
all the quality
views, discreetly
controls and the if necessary
check list
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ASK THE RECOMMENDERS ……
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Check for
confirmation
bias
Request
additional
options
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Check for
availability bias
Check for halo effect
Use checklists
of the data
needed for each
kind of decision
Eliminate false
inferences, and ask
the team to seek
additional
comparable
examples
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ASK ABOUT THE PROPOSAL ……
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Check for
overconfidence
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Check for
disaster neglect
Have the team
Is the worst case
build a case
scenario bad
taking an outside enough?
view
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Check for loss
aversion
Realign incentives
to share
responsibility for
the risk or to
remove risk.
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EVIDENCE BASED MANAGEMENT
In sum:
1. Evidence based decision making: biases
2. Evidence based management: knowledge
3. How to balance time vs evidence
Articles:
– Kahneman, D. , Lovallo, D., Sibony, 0. (2011);
– Rousseau, D.M. & Barends. E. (2011)
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EVIDENCE BASED MANAGEMENT
In sum:
Thank you
• Know more about evidence based management (what
is it, and why it is important)
– KnowKarin Sanders
more about the importance of knowledge
– Know more about decision making and bias in
decision making (bounded rationality)
k.sanders@unsw.edu.au
• Articles for
this week:
– Kahneman, D. , Lovallo, D., Sibony, 0. (2011);
– Rousseau, D.M. & Barends. E. (2011)
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