Harvard Business Review - Harvard Business Review on Making Smart Decisions (Harvard Business Review Paperback Series)

The Harvard Business Review
paperback series

If you need the best practices and ideas for the business challenges you facebut dont have time to find themHarvard Business Review paperbacks are for you. Each book is a collection of HBRs inspiring and useful perspectives on a given management topic, all in one place.

The titles include:

Harvard Business Review on Advancing Your Career

Harvard Business Review on Aligning Technology with Strategy

Harvard Business Review on Building Better Teams

Harvard Business Review on Collaborating Effectively

Harvard Business Review on Communicating Effectively

Harvard Business Review on Finding & Keeping the Best People

Harvard Business Review on Fixing Health Care from Inside & Out

Harvard Business Review on Greening Your Business Profitably

Harvard Business Review on Increasing Customer Loyalty

Harvard Business Review on Inspiring & Executing Innovation

Harvard Business Review on Making Smart Decisions

Harvard Business Review on Managing Supply Chains

Harvard Business Review on Rebuilding Your Business Model

Harvard Business Review on Reinventing Your Marketing

Harvard Business Review on Succeeding As an Entrepreneur

Harvard Business Review on Thriving in Emerging Markets

Harvard Business Review on Winning Negotiations

Copyright 2011 Harvard Business School Publishing Corporation

All rights reserved

No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior permission of the publisher. Requests for permission should be directed to , or mailed to Permissions, Harvard Business School Publishing, 60 Harvard Way, Boston, Massachusetts 02163.

First eBook Edition: April 2011

ISBN: 978-1-4221-7239-1

John S. Hammond, Ralph L. Keeney, and Howard Raiffa

Dan Lovallo and Daniel Kahneman

Ram Charan

Jeffrey Pfeffer and Robert I. Sutton

David A. Garvin and Michael A. Roberto

Paul Rogers and Marcia Blenko

Mahzarin R. Banaji, Max H. Bazerman, and Dolly Chugh

Thomas H. Davenport

Andrew Campbell, Jo Whitehead, and Sydney Finkelstein

Michael C. Mankins and Richard Steele

by John S. Hammond, Ralph L. Keeney, and Howard Raiffa

MAKING DECISIONS IS THE MOST important job of any executive. Its also the toughest and the riskiest. Bad decisions can damage a business and a career, sometimes irreparably. So where do bad decisions come from? In many cases, they can be traced back to the way the decisions were madethe alternatives were not clearly defined, the right information was not collected, the costs and benefits were not accurately weighed. But sometimes the fault lies not in the decision-making process but rather in the mind of the decision maker. The way the human brain works can sabotage our decisions.

Researchers have been studying the way our minds function in making decisions for half a century. This research, in the laboratory and in the field, has revealed that we use unconscious routines to cope with the complexity inherent in most decisions. These routines, known as heuristics, serve us well in most situations. In judging distance, for example, our minds frequently rely on a heuristic that equates clarity with proximity. The clearer an object appears, the closer we judge it to be. The fuzzier it appears, the farther away we assume it must be. This simple mental shortcut helps us to make the continuous stream of distance judgments required to navigate the world.

Yet, like most heuristics, it is not foolproof. On days that are hazier than normal, our eyes will tend to trick our minds into thinking that things are more distant than they actually are. Because the resulting distortion poses few dangers for most of us, we can safely ignore it. For airline pilots, though, the distortion can be catastrophic. Thats why pilots are trained to use objective measures of distance in addition to their vision.

Researchers have identified a whole series of such flaws in the way we think in making decisions. Some, like the heuristic for clarity, are sensory misperceptions. Others take the form of biases. Others appear simply as irrational anomalies in our thinking. What makes all these traps so dangerous is their invisibility. Because they are hardwired into our thinking process, we fail to recognize themeven as we fall right into them.

For executives, whose success hinges on the many day-to-day decisions they make or approve, the psychological traps are especially dangerous. They can undermine everything from new-product development to acquisition and divestiture strategy to succession planning. While no one can rid his or her mind of these ingrained flaws, anyone can follow the lead of airline pilots and learn to understand the traps and compensate for them.