Why group discussions often make decisions worse

(Second of four parts)

HEC Paris management professor Olivier Sibony wrote the bestseller “Noise: A Flaw in Human Judgment” together with Nobel-winning economist Daniel Kahneman and Harvard policy expert Cass Sunstein. In this exclusive interview, Sibony discusses the dangers of unwanted variability in human judgments.

Q: How do people minimize noise?

A: I would answer the question of how organizations—as opposed to people—can minimize noise. While organizations are comprised of people, noise is a problem for organizations.

We call these ways to tackle noise “decision hygiene” because they are preventive measures. They do not solve the problem of noise; they prevent it from appearing in the first place. Once noise exists, there’s not much you can do about it, but you can build a decision process so it does not appear.

When you wash your hands, you don’t know which germ you’re eliminating, and you will never know what disease you’d have had if you hadn’t washed them. And,if you correctly wash your hands, you will be fine, [even if] it looks like you wasted time washing. People need constant reminding to practice hygiene; we tend to forget without reinforcement. Decision hygiene—reducing noise—belongs to prevention; it’s slightly thankless. But it’s the only way to put noise under control, so it’s got to be a task of organizations.

The simplest way to reduce noise is to take advantage of the fact that noise is a random error, so the errors of different people will be different. If you take the average of multiple judgments—now we take advantage of averages instead of letting them mislead us [unlike the case last week]—you mathematically reduce noise.

In our insurance company example [from last week], instead of asking one underwriter to give a price, I ask 10, thereby reducing noise by a factor of three (divide by the square root of 10). But this is costly; you can’t ask 10 people to do the job of one [individual] every time you have a decision to make.

And especially important for family businesses, people try to practice decision hygiene, but they mostly do it wrong. They say, “We have different views and backgrounds, so let’s get together, use collective intelligence and talk about our decisions.” That sounds obvious. It’s what every company does, large or small, and it’s dead wrong.

Why? These points of view are not independent from each other. [Doing so] creates a lot of social influence, especially in family businesses, where some people have higher authority and greater reputation than others, and everyone is trying to guess what [the rest] are thinking. These groups become much noisier than the individuals that comprise them.

To take advantage of diversity of thought, make sure that the individuals in the group are actually forming independent points of view before they start discussions. Ensure that they are not informed of what the others think [beforehand]. Have them write down their own judgment before they discuss it.

For [many family businesses], creating consensus is the real goal, not making the best decisions. There is a trade-off between getting the best decision or the faster consensus, and most [businesses] choose the latter. For the best decisions, be willing to tolerate more friction, more differences, more expression of the underlying disagreements, which your normal discussion process works to suppress.

Q: Filipino culture is generally not as [straight-talking] as Westerners. Can you give nonconfrontational techniques for decision making?

A: Say in hiring, someone gets into a room and says, “Oh, I really liked him. What do you think?” [Another says,] “Yeah, I like him.” But often the others just started liking him because one person said so.

A better way would be for people to fill up an evaluation form before meeting each other, then another committee takes those inputs and has a discussion based on them. This way, you don’t have direct confrontation among people with different points of view. They are contributing to the decision, but they don’t need to confront each other.

(Next week: When variability in judgments is okay)

Get “Noise: A Flaw in Human Judgment” at Fully Booked. “Noise” will also soon be available at National Bookstore.

Queena N. Lee-Chua is with the board of directors of Ateneo’s Family Business Center. Get her book “All in the Family Business” at Lazada or Shopee, or the ebook at Amazon, Google Play, Apple iBooks. Contact the author at [email protected].