The trusted advisors have been consulted. Much thought and deliberation have been done. The answer and direction are clear. Still there is hesitation.
There are all kinds of excuses offered up.
“I want to be sure I’ve thought this through.” “It’s not that simple.”
Whatever the explanation, it’s nothing more than a justification for inaction.
While this scenario is common in all areas of life, it can be particularly detrimental for those in positions of leadership. Those over whom the leader is responsible often perceive this paralysis as leadership failure.
So how can it be overcome?
It’s important to recognize a very real psychological component that keeps us stuck in the status quo. It’s a concept called prospect theory, and it comes from decades of research by Daniel Kahneman and Amos Tversky on decision-making processes involving risk and uncertainty. In Kahneman’s book, Thinking Fast and Slow, he provides this simple definition: we are more inclined to avoid loss than we are to move toward a gain.
Any change from the status quo is psychologically perceived as a loss. This is one of the reasons people stay in bad relationships – it is familiar and there is a substantial emotional investment. Even with significant pain, the severing of that relationship is regarded as a loss.
Now, let’s apply that to business.
Most executives understand sunk cost. This is the concept that what’s done is done, and decisions should not consider sunk cost. Decisions should only be based upon the return on the next dollar or hour spent on the project or line of business. This, however, is not the way most people operate.
Often managers say, “We’ve got too much invested in this to let it go now.”
While understandable, it’s the wrong perspective. The only thing that matters is the return on the time and resources necessary to complete the project or initiative. There is often a huge sense of loss with abandoning a failed initiative into which so much time and money have been invested. The result is an increase in risk tolerance when it comes to trying to limit losses.
Here’s the classic example from Kahneman and Tversky’s research. Subjects were presented with the following questions.
- You have $1000 and you must pick one of the following choices:
A: You have a 50% chance of gaining $1000, and a 50% chance of gaining $0.
B: You have a 100% chance of gaining $500.
- You have $2000 and you must pick one of the following choices:
A: You have a 50% chance of losing $1,000, and a 50% chance of losing $0.
B: You have a 100% chance of losing $500.
From a purely logical analysis, options A and B are equivalent in both questions. However, respondents overwhelmingly chose B for question 1 and A for question 2. In other words, they were risk averse when it came to the potential for gains, but risk seeking when it came to limiting losses.
This leads us to the second reason for decision paralysis: fear. Fear of making the wrong decision often overwhelms the pain of the current situation. Fear is also tied to the concept of prospect theory. The status quo is known. The consequences of a choice that may result in an even greater loss have yet to play out.
Many leaders fall prey to the illusion that they must be invulnerable and infallible. Vulnerability is vital for leaders. History is filled with examples of people embracing leaders that display their humanity. The converse is also true. Leaders projecting a persona of invulnerability are often perceived as unapproachable, disconnected, and egotistical.
Because most decision paralysis happens around large financial or human resource decisions, having a logical decision-making process is critical. This is also where the healthy conflict of effective teams is vital. Leaders must have mentors, advisors, and team members that will ask the difficult questions during the decision-making process.
With those components in place, the correct decision will become clear.
At that point, it is time for the leader to lead.
A collection of thoughts and musings 