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Heuristics: Why Intelligent Managers Make Mistakes

As an experiment, a cohort of MBA students was given a math test with difficulty at about the 5th-grade level.  The test was administered online, designed as an open book multiple-choice, and no time limit was imposed. All possible conditions were put in place to make passing the test easy.  The results, revealed at the beginning of the next class, came as a big surprise – and a considerable blow to the self-esteem of the A-type personalities enrolled in this highly respected graduate management program.  The overall class average on the test was 33%.

The results did not surprise the professor, however.  When other MBA and Ph.D. students were given a similar test, their scores were comparable.  The secret, the professor explained to his class, was in the design of the test and framing of the questions.  It was deliberately fashioned to exploit the natural cognitive bias we all have towards heuristics, and it invariably found that target despite the intelligence and education levels of the people taking the test.  

It should be noted that no information was withheld on the test, and no unconventional assumptions needed to be made, so with careful reading and accurate calculations, it would have been possible to score 100%.  What ultimately led to graduate-level students failing was a design that allowed heuristics to undermine both factors.  The multiple-choice answers were constructed in a way to make the wrong ones seem more obvious than the right ones unless they were carefully thought through.   And the demanding schedule of the MBA program created a time crunch issue for the students, so they voluntarily by-passed time-consuming meticulous calculations in favor of quick but erroneous approximations.  

These biases towards heuristics influence the managerial world and organizational governance.

Application to the Management World

The disconcerting reality about human biases is that they thrive in precisely the environment that most managers and executives function in daily. When time is scarce, the natural default to heuristics is amplified.   Management often faces complex problems that require non-linear solutions, but without adequate capacity or resources, even the most intelligent and competent managers cannot avoid making mental shortcuts.

Two common biases that managers fall victim to is the Status Quo Trap, where decisions that favor existing conditions are intrinsically valued without sufficient introspection, and the Sunk-Cost Trap, which favors choices that are in line with past decisions, even if those were not the best ones. Both of these biases are predicated on the same heuristic – it’s simpler to make small cosmetic changes than complex and significant ones.

Avoiding the Traps

This is where business management consulting services come in.  What an external and experienced perspective can uncover can be surprising and can help managers learn how to make the deliberate and thoughtful choices their organizations need.   

Click here to read more about the systemic approach to organizational and behavioral change that is a part of every Trindent Consulting engagement.