How to teach managers to make the best decisions?

2017-03-02

Many people’s lives might depend on a single decision of a manager or an executive. How do the best and correct decisions depend on the ability to communicate?

Let's say you have $50,000 available for investment. And now imagine that you have three advisers.

Here they are:

Which one of them would you entrust with your money? Of course, the majority would trust the analyst. And at first glance, it seems to be logical and correct.

Meanwhile, such an experiment was actually conducted by a professor of psychology in the UK.

And it had an unexpected result:

- The astrologer made his choice on the basis of the date of company’s foundation.

- The financial analyst examined the activities of the company over the past 7 years and invested on the basis of this analysis.

- The girl has chosen four random companies from the list of possible investments.

Even the first results were more than interesting. During the first week of the experiment the astrologer lost 10% of the money, the analyst lost 7%, and the girl - 4%. But that’s not all.

The experiment was designed to last for a year. And a year later, the results were even more exciting. Due to the fluctuations in the market, the astrologer eventually lost 6%, the financial analyst lost 46% (!!!). In contrast to that the 4-year-old girl actually made the profit of 5.6% which is impressive, isn’t it?

How do we interpret that? Someone might say that we must stop trusting experts and start asking small children for advice. But it is not the point.

If an expert knows a rigid causal relationship, he or she can predict the result with high accuracy and make the best decisions. But if the connection between the events is not a fact but more of a probability, then the opinion of an expert becomes just an opinion and nothing more. In such a situation, as the experiment showed, there is almost no difference between advisors.

Sometimes expert’s experience and knowledge can even prevent from making a correct decision because they are based on the personal past. And the future is often different from the past experience.

So how does anybody, especially managers and executives, can ever make an important decision? Another experiment answers this question.

Much earlier than the investment experiment another one was conducted. Several hundred people were asked a very specific and difficult question. Almost nobody knew the correct answer so they gave answers based on their own opinions. The answers were very different and for the most part wrong. But when the conductors put all of them together and extracted a kind of an average value it turned out exactly correct! Thus, it turned out that every individual was wrong separately, but together they were right!

It sounds intriguing. That means that in order to get an answer worthy of attention and make a good decision, we need as many opinions as possible. Moreover, the opinions must be different or even polar. And then we just stick to something average.

It seems simple. But people are demanding creatures and their answers are highly dependent on what they think about those who ask the questions. So if you decide to gather several opinions to make a life-changing decision, you’d better be sure in your communication skill. Otherwise, you might get the information too late, incomplete, or incorrect.

But in companies, we often see a different picture. Employees (all together) have the necessary information to bypass competitors, or to exit the crisis, etc. But the managers do not use it probably because it did not occur to them or because "they know better". The situation looks ridiculous: the information you need is right there but at the same time it is not.

Therefore, many leaders are becoming increasingly aware that they have a valuable resource - "collective intelligence". All they need is to be able to communicate and ask the right questions.

employee