Making decisions not an easy task
I have to admit that I am a bit obsessed with how people make decisions. In my business, I spend a lot of time and energy helping clients make the right choice. When you boil it all down that’s really what I do. I help people make the right business decision.
I have learned over the years that decision making is a lot more complicated than some people realize. As humans we are hardwired with certain inherent tendencies and biases that can corrupt our decision-making. The end result can be bad choices and negative outcomes. Understanding these tendencies and making my clients aware of them is part of the value that I deliver to them in my practice.
These tendencies and biases are known as “cognitive biases,” and we all have them. Cognitive biases are patterns of deviation in judgment that occur in particular situations. Essentially, they are instances of evolved mental behavior. A simple example of a cognitive bias is the bandwagon effect, which leads to the herd mentality. We all have a natural instinct to go with the flow and side with the majority. But sometimes the herd can be wrong.
None of us are immune to the impact of cognitive biases. I was reminded of this Sunday night when Patriots head coach Bill Belichick made a controversial decision late in the game that led to a painful Patriots loss. The negative outcome the decision produced makes me wonder whether Belichick’s decision-making was influenced by cognitive bias.
The situation was this: The Patriots had the football with around two minutes to go in the game, on their own 28-yard line. It was fourth down, with two yards needed to get a first down and retain possession of the football. Conventional wisdom says Belichick should punt the football to the Colts, and rely on his defense to keep them from marching 70 yards or so and scoring. But Belichick chose not to punt. He went for the first down, and the Patriots didn’t make it. The Colts promptly drove down the short field to score the winning touchdown.
Why would Belichick make an unconventional decision that contained such a high degree of risk for his team? One reason is that he is a smart guy who understands statistics. Statistically, NFL coaches punt the football too often. The statistics say teams should go for first downs on fourth down more often than they do. In addition, Belichick is well aware of the herd mentality in the NFL. He very much enjoys going against the flow. But in this instance he may have been sabotaged by a combination of his desire to avoid the herd mentality and another less obvious cognitive bias.
It is possible that the cognitive bias known as the “pseudocertainty effect” played a role in Belichick’s thinking at the time. The pseudocertainty effect is a tendency people have to make conservative choices if the expected outcome is positive, and to take on too much risk when the expected outcome is negative. Basically, the pseudocertainty effect causes people to gamble more to avoid a loss than perhaps they should. Conversely, they tend to not want to risk as much to attain a gain.
Belichick chose to go for the first down for one big reason: he wanted to avoid giving the football back to Peyton Manning and the Colts’ offense with two minutes to play in the game.
That potential negative outcome might have prompted Belichick to take on too much risk when he made his decision.
It seems clear that Belichick relied on the statistics that say going for a first down on fourth and two is the right call. But at the same time he seemed to place too little weight on another equally important aspect of the decision.
The probability of the Colts scoring from 28 yards out is significantly higher than the probability of them scoring a touchdown from perhaps as much as seventy yards from the end zone, which is where they might have started the drive had the Patriots punted the football.
That difference is enough to characterize Belichick’s decision as a risk-seeking choice. But maybe we shouldn’t be surprised.
After all, that is precisely the sort of choice that the pseudocertainty effect suggests all of us make when we are trying to avoid a loss.
So what does this mean for all of us? It means that the next time we face an important decision, whether in business or in our personal lives, we may want to consider the pseudocertainty bias. If we are making a decision to avoid some sort of calamity, we should be aware that our brains will steer us toward an option that might contain too much risk. On the other hand, if we are about to capitalize on an opportunity that would lead to a positive outcome, we should be aware that we might be less inclined to take risk.
That could cause us to lose a sweet deal. And that bit of self awareness could be the difference between a good decision and a bad one.
Scott Flegal is a business lawyer and mediator. Visit him online at www.flegal.com or www.negotiationworks.org.
