Tag Archives: heuristics

Pitfalls of Leadership: The Illusion of Control

YOU GOTTA KNOW WHEN TO FOLD ‘EM

Perhaps nowhere is human fallibility more prominently displayed than in Vegas. Novelty alcoholic beverages, garish lights, and smoke-filled labyrinths aren’t just a good time, they also teach a lot about how we make decisions. So what can the City of Sin teach us about a leader’s tendency to want control?

Obviously, people have a vested interest in feeling competent and in control. In fact, the definition of stress that I find most useful is “the loss of perceived control over an event.” So while the obvious upside of this tendency to feel in control is a perception of personal competence, the downside is that we tend to think we can control random events as well.

Let’s say I offered to sell you a lotto ticket that provided you a 1 in 50 chance of winning a prize. How much would you pay if I told you that I’d take your money, select a ticket randomly, and that would be your number? Now how much would you pay if I offered to let you choose your ticket from among the 50 available, allowing you to pick your daughter’s birthday or the number of Twinkies you ate to win that contest (ah, glory days).

When psychologists run this experiment, people pay $1.96 on average for the tickets that are given to them and $8.67 on average for the tickets where they are allowed to choose the number! Obviously, the odds are the same in both conditions, 1 in 50, but our confidence that we control the universe is such that we are willing to pay 4.5 times more to be in charge.

WHO’S THE BOSS?

Another example of our propensity to overvalue our own influence is the tendency of people to overinvest in their own organization’s stock for the stated reason that they can directly impact the stock price. So, Suzie from accounting is going to invest in Coca-Cola because she feels the valuation of the world’s greatest brand lives and dies on the skill of her beancounting. HINT: If you, in isolation, can directly impact the rise and fall of your stock, and make personal investment decisions accordingly – you might be going to jail soon. For the rest of us in middle management, our daily travails don’t matter much one way or the other in the ultimate success or failure of a publicly traded company and it’s best not to invest as though they do.

WHAT NOW?

But Dr. Crosby, now that I know that I don’t control the universe, what do I do now? First off, you can stop blaming yourself for every little thing that has gone wrong on your watch, because you didn’t control that either. Take responsibility where it is rightfully yours, and let the rest roll off. Second, you can embrace the uncertainty inherent in being a business leader. In fact, the volatility of it all is what provides significant upside risk. Finally, exert your energy in areas that matter – study true thought leaders in your industry, build relationships internally, take time to evaluate yourself as well as those with whom you work. The bad news is, your presence alone may not make or break your organization, leaders typically get too much credit and too much blame. However, knowing your limits can help you understand where you are powerful, and give you a sense of self-efficacy without all the megalomania.

Source: http://incblot.org/uncategorized/illusion-of-control/

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Pitfalls of Leadership: The Affect Heuristic

Notwithstanding the fact that you’re grandma thinks that you are such a nice boy and your Mom thinks you are handsome – we have already established that you are a biased leader. In my last post, we discussed the availability heuristic as it impacts your ability to lead impartially. Today, I’d like to touch on how mood impacts leadership.

DEBBIE DOWNER

When giving a seminars on leadership bias, I often ask participants to write down the word, that if it were spelled phonetically, would be “dahy”. Go on, write it down and don’t overthink it. It turns out the way you spelled the word has a lot to do with the kind of day you are having. Those that spelled the word as “die” may need a hug, while those that spelled the word “dye” are probably doing alright. The reason this is the case is that our mood has a great deal to do with how we retrieve memories and consequently, how we lead.

ROSE COLORED GLASSES OR “I WEAR MY SUNGLASSES AT NIGHT?”

One of the reasons psychologists can charge $200/hr to ask, “How does that make you feel?” is that we have gotten great at putting fancypants labels on things that would otherwise be very intuitive. Take for instance the tongue-twisting affect heuristic, which is simply a reference to our tendency to perceive the world through the lens of whatever mood we are in.

Ask someone having a bad day (those that wrote “die”, I’m looking at you) about their childhood and they are likely to tell you how they were chubby, had pimples, and never got picked first at kickball. Conversely, ask someone having a good day about their childhood and they are likely to recall summers in Nantucket and triple dips from the Tastee Freeze. Memory and perception are moving targets colored by our mood, NOT infallible retrieval and evaluation machines through which you make unbiased decisions.

WHO CARES?

So what is the moral of all of this psychobabble for the average leader? Think back on the last time that you went shopping when you were hungry. Once you’ve brought that to mind, think back on the contents of your shopping cart. If you’re like me, you probably had a whole mess of HoHos, Ding Dongs, Nutty Buddies, and Diet Coke (you don’t wanna get fat, after all), but nothing very healthy or substantive.

The same rules apply to making decisions that impact your business and the people that make comprise it; if you try to make decisions about the riskiness or viability of a given choice when you are happy/sad/angry/in love/anxious/ worried/euphoric, you are likely to end up with a junk food organization. So, the next time you are about to call a subordinate into your office in a fit of rage, take a step back, breath deeply, and come back down to Earth. After all, shopping while you’re hungry can make you sick.

Source: http://incblot.org/uncategorized/affect-heuristic/

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