Making the Right Decisions

29 September 2021

"Intelligent decision-making entails knowing what tool to use for what problem." 

Gerd Gigerenzer

There is no such thing as the best decision-making strategy or approach that can be used in every situation.
Every decision-making strategy needs to be adapted to the environment in which it is used.

So, what to do?

Context matters.

First of all, we should identify what kind of environment we are in. If we know all the possible alternatives, their probabilities and possible consequences, we are in the world of risk and can determine the optimal strategy.

If individual components are unknown, we are in the world of uncertainty (i.e., 90% of the time). Calculating the best strategy is impossible. We must find individual solutions to the problem.

In doing so, let us be guided by this trinity of steps to take in uncertain situations:

  • Identify the sources of uncertainty
  • Separate relevant from irrelevant and reduce uncertainty 
  • Keep an eye on the remaining uncertainty and install a feedback system

Making good decisions, knowing what the future holds:

  • 'De-biasing' has limitations.
  • Instead of applying "de-biasing", focused solely on flawed decision-making strategies, we should rather ask ourselves how to make better decisions and actively promote decision-making competence.
  • In doing so, it is also important to question whether factors such as the way information is presented might contribute to the problem. Intelligent representations of problems can reinforce, remove or even reverse alleged cognitive biases.

Making good decisions, not knowing what the future holds:

  • Using simple heuristics in an uncertain world.
  • There are now many examples of how simple heuristics can beat even the most complex and advanced AI methods in an uncertain world, such as in investment, predicting customer behaviour or identifying successful start-ups.
  • The same is true in executive search: the human brain, as well as predictions of professional performance, are complex.
  • Personnel selection should, therefore, not be carried out by using more complex methods.

Structures and processes to consciously deal with uncertainty:

  • Structures and processes should primarily support the detection and management of uncertainty and be adapted to the degree of uncertainty in the environment.
  • In personnel selection as well as innovation management, the environment is characterized by high uncertainty. Instead of masking this with complex models, uncertainties should be identified and pointed out to decision makers.
  • In the personnel selection process, the complexity for predicting career success can be reduced to the factors that are critical for success. The basis is the requirement analysis, through which the personality traits and competencies critical to success, the goals and expectations of the various decision-makers and the context are worked out.
  • Of central importance for predicting professional performance are the potentials which enable transferability to future tasks.

Innovation requires a constructive risk-taking culture:

  • The grievous sin: Defensive decision-making.
  • Defensive decision-making costs organizations on average about 6 to 15 percent of their potential value creation. Additionally, there are indirect costs such as the impact on employee satisfaction, missed opportunities for organizational learning and wasted innovation potential.
  • The reasons for defensive decision-making in organizations are rarely based on fear of legal consequences, lack of resources or lack of information. Rather, it is a culture issue within the organization. Therefore, there is no way around it other than to work on the underlying culture in the company.
  • The first and most important principle: where there is uncertainty, mistakes are inevitable and should be regarded as learning opportunities. 

Marvin Siebert
Partner, Germany


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