Book Review: The Economist: Guide To Decision Making

Admit it, we all get it wrong sometimes. The fact is that decision-making is hard, even with today’s ready guidance from economic textbooks, historical red flags, and even mathematical formulas.

The reality is that big and small companies fail on major decisions on a daily basis. Lehman Brothers might have survived if it had raised more capital or merged while it still had the chance.

The Royal Bank of Scotland was almost ruined by the decision to acquire ABN Amro. The Deepwater horizon disaster exposed flaws in BP’s decision making. And these are just the corporate catastrophes we hear about. Many more go unreported.

This guide to decision making, by leading decision science academic Helga Drummond, explores how and why decisions go awry in the first place − and offers practical advice on what leaders can do to counter the psychological and social forces that can undermine individual judgment and pull organisations off course.

The book kicks off with a chapter on hubris − “calamity loves the overconfident” − and explains how an exaggerated sense of self-belief can tempt us to take bigger and bigger risks.

As the 2008 financial crisis demonstrated, repeated successes amplify the danger. “Humility is the cure,” Drummond warns.

The author also earmarks unilateral data collection, group dynamics, and politics as potential rail-roaders for wayward decisions.

Particularly interesting are the chapters on ‘escalation of commitment’ and ‘lock-in’ − by this time, we’re throwing good money after bad, or trying to avoid the problem altogether.

Ultimately, the book claims, there is nothing for it but for decision-makers to “put up the money and roll the dice.”

However, systematic errors – the different types of “traps” – that result in flawed decisions are avoidable. This clever and concise book is about why bad decisions are made and how to make better ones.