Written by
Anthony J. Nyberg

14 Apr 2016

Are you undermining your most important HR decisions?

14 Apr 2016 • by Anthony J. Nyberg

Decision-making perspective

The intersection of psychology with economics and finance has identified areas where decision-making quality succumbs to biases. These biases, which are often not conscious, lead to suboptimal decisions and to greater confidence in these decisions than warranted.

This creates problems throughout a professional’s career. For instance, the overconfidence (or optimism) bias is the mistake of believing that we are likely to make better decisions than we actually are. This is a common mistake that occurs when people over inflate both their ability to make quality decisions and the confidence that they have in decisions already made. Experts are as, or more, apt to succumb to this bias than non-experts, and experts in one area are even more likely to make this mistake when making decisions outside of their specialisation.


Five mechanisms for avoiding these traps

1. Put in the time

Allocating sufficient time is essential for avoiding the planning fallacy. The planning fallacy is the decision-making trap that we encounter when we underestimate the time and effort required to make a quality decisions. In selecting senior leaders, this is particularly important to overcome because of the time that it takes to identify talent across a myriad of skills.

According to the 2013 HR@Moore Survey of chief human resource officers, identifying the correct successor can take three to five years for important positions. Unfortunately, many companies get caught waiting until a person announces a departure, leaving companies scrambling with insufficient time to identify and ready an appropriate candidate.

2. Be systematic

Systematic processes enhance the quality of decision outcomes. When selecting senior leaders, we may succumb to the confirmation bias, which is the trap of making a decision (consciously or subconsciously) and then searching for confirmatory evidence. This mistake occurs when we rely on evidence that would confirm our initial choice rather than carefully examining all of the evidence regarding who would be the best choice. 

3. Use external help

Decision makers unknowingly become caught in two complementary traps —  anchoring and availability. The anchoring bias is the problem of getting “stuck” on one piece of information and having difficulty moving away from that information. It could manifest itself as rejecting a great hire do to a poor first impression. Similarly, the availability heuristic leads one to overweight items that are easily accessible in memory (this is similar to recency effects, where we overweight recent events more than earlier events). Hence, we may overweight a recent presentation at the expense of evaluating the entire package. These biases are particularly troublesome for thinking about hiring executives because they lead to narrowly focusing on only one piece of the puzzle (e.g., the parable of examining only the trunk of the elephant). Conversations with CHROs continually point to this mistake, and remind us that using external help (even if internal to the organization, but external to the unit) can help highlight issues that we may have suppressed. For example, Amazon is notorious for doing this very well because they require someone from outside of the hiring unit to participate in all selection decisions.

4. Continually update knowledge

As environmental conditions change, decisions need to be adaptable. Commitment bias (similar to the sunk cost fallacy) arises when decision makers become committed to decisions even when the conditions that led to the first decision change. This problem is exacerbated in talent management. If environmental or firm conditions change, such as when strategies change, the  capabilities that had previously seemed essential may be less relevant. In such cases, firms must work to avoid remaining committed to prior decisions and instead consider alternatives.

5. Review and evaluate the decision-making process, not the outcome

Evaluating decision-making processes rather than outcomes is challenging, but critical, to accurately evaluating one’s own decisions as well as those of your subordinates.  It is easy to reward employees who were in the right place at the right time without taking into account their proactive decisions. Similarly, it is easy to blame a manager when things do not go well. The problem is that giving credit, both positive and negative, for events that are not in the control of the individual means giving credit for randomness. Instead, over time you will do better if you identify and reward quality decision makers, who are then likely to continue making quality decisions. Not all decisions are successful, but a lack of success does not indicate a poor decision, while success does not indicate replicable processes. 

The good news

We can make better decisions. The likelihood of succumbing to these biases (and others) can be mitigated to the extent that we engage in decision making analytically and systematically, and are aware of the potential challenges that may befall our decision making. Establishing careful decision protocols to optimise resource allocation can minimise decision errors.