When I was a teenager, my father would unfailingly surprise me with a Kodak disposable camera on special occasions. Jittery with anticipation, I would rip open the cardboard box and stick the camera in my pocket, ready at the drop of a hat to immortalize the day’s events on film. Once the film was finished, I would run to the store where I would carefully fill out the details on the paper envelope before dropping my entire camera into its contents. I would wait, with bated breath, until I could finally flip through my assortment of images, reliving the moment with each new and exciting photo.
Kodak was a ubiquitous part of my childhood, its complete market dominance reflected in my many photos with the company watermark carefully stored in an assortment of shoe boxes and photo albums. Suddenly, and shockingly, the company seemed to disappear. What happened to this once-monumental photo industry giant?
The answer, it turns out, boils down to a few ill-fated decisions. Despite the fact that Kodak built the first digital SRL camera in 1989 and patented the technology, the company grossly underestimated the impending digital revolution. By not fully embracing the digital camera and choosing to stick to its classical core film and developing business, Kodak lost big. The company declared bankruptcy in 2012 and, although they were eventually able to dig themselves out, they lost their stature as photo industry giants in the process.
When I started my own company, JotForm, I was haunted by Kodak’s tragic story. Some say it’s a cautionary tale of a company that didn’t embrace a powerful trend quickly enough. Others say it’s the parable of a company that didn’t anticipate the needs of their customers. Whatever the truth may be, a decision was made, and it turned out to be the wrong one.
Why do smart people sometimes make foolish decisions? Scientists have been trying to answer this question for centuries and the answer, as you might have suspected, is complicated.
Our decision-making is greatly affected by pesky little things called cognitive biases that are hard-wired into the human brain. They are common thinking errors, or unconscious misperceptions, that can trick us into making poor decisions. Unfortunately, the bad news doesn’t end there. Wikipedia lists the number of cognitive biases at 185, of which a solid 100 have been proven to consistently distort our decisions.
Let me give you an example. Imagine it’s the end of the year, time for your annual bonus and the company has had some big wins. As you secretly hoped, you received more than you expected and now you get to decide what to do with the extra money. The smart thing to do is to put it into savings where it will sit until needed while earning interest. Instead, you tell yourself that it’s been a hard year and start looking for flights to a sunny and exotic destination. Don’t worry, we’ve all been there and science says we probably made a similar decision too.
As humans, when faced with a trade-off between two future moments, we have a tendency to favor the option closest to the present. This is called present bias and studies have shown that it is associated with undesirable spending, borrowing and saving behaviors. As a result of this unconscious bias, we often settle for a smaller present reward rather than wait for a larger future payoff.
Psychologists agree that we can’t eliminate our cognitive biases completely, even if we are aware of them, but we can take steps to mitigate their effects. I would like to share with you my decision making tips that have helped me grow my company.
Bring structure and discipline into judgement
When you boil it down, strategic decision making is simply forming an evaluative judgement of two or more alternatives. The process requires reducing a vast amount of information into a single path forward. If we want that path forward to be the best path forward, we should try to reduce our errors in judgement that are unwittingly caused by our cognitive biases.
While serving in the Israeli Army back in 1956, psychologist Daniel Kahneman noted that ratings given to recruits after a traditional interview turned out to be poor predictors of their future success. Traditional interviews, he observed, relied too heavily on the intuition and impression of the interviewers and not enough on attributes or facts.
It’s important to leave biased first impressions at the door when making big decisions, and in order to help us do so, Kahneman developed the Mediating Assessments Protocol (MAP). It’s simple and easy to implement into any decision-making process and has been adopted by both Google and Amazon.
All you need to do is make a list of the key variables and ensure that all individuals participating in the decision score each variable independently and objectively. Once the scores have been tallied and averaged, participants can give their intuition free rein and rate their confidence in the decision. Using facts first, and then intuition, helps reduce the errors introduced by our perception.
Avoid analysis paralysis
In his 2016 letter to shareholders, Jeff Bezos shared a key piece of wisdom that I have wholeheartedly adopted at JotForm. As companies grow larger, the speed and dynamism with which decisions are made decreases. More individuals are involved in the decision making process, more factors are usually being considered and there is a tendency to seek out more information than what is really needed.
To avoid information bias, commonly known as analysis paralysis, Jeff Bezos recommends using his 70% rule. In most cases, Bezos has found that you only need about 70% of the necessary information before making a decision. Since speed is important in business, waiting until you have 90% of the information probably means that you are taking too long.
If the thought of making a big decision with only 70% of the facts gives you anxiety, Bezos reminds us that if we identify bad decisions quickly, they can often be corrected or even reversed. Making fast decisions and correcting the course along the way is often less costly for a business than a slow and drawn out decision making process.
Make A.I. your friend
Although there is some debate as to the extent to which we can personally correct our biases, all researchers agree that the only way to largely eradicate them is to incorporate artificial intelligence into the decision making process.
Countless studies over the past 60 years have compared algorithms to human decision making and in over half the studies, algorithms were found to be more accurate than humans. In the other half of the studies, the algorithms tied with their human professional counterparts.
There are many benefits to algorithms, which are cost-effective and can easily be made with or without outcome data. That is not to say that algorithms should replace human professionals, but rather that they be used as an intermediate source of information for people who make the final decisions. Algorithms still need to be monitored and adjusted on occasion, when changes occur in the case population. People must retain the ultimate control, but with the help of an algorithm, errors in decision making can be significantly reduced.
Just like Kodak, we can’t free ourselves from errors in judgement that lead us to make poor choices. We can, however, use both science and technology to make less biased decisions and ultimately better choices in the long run. Sometimes, the right decision really isn’t that hard to make after all.