Welcome to this course on critical decision making. Our professor is Michael Roberto, the trustee professor of management at Bryant University. In the past he's served on the faculty at Harvard Business School, any New York University's Stern School of Business. He teaches on the subject to undergraduates, MBA students, and executives, he's conducted research and written books on decision making, and he works with companies in management to help improve their decision making capabilities.

Michael looks forward to working with us in this course. Decision making is a very complex endeavor, something we engage in all the time, some decisions more high-stakes than others, yet often times decision making can perplex us. It can be quite challenging and cause us to trip up and make mistakes. Napoleon once said:

"Nothing is more difficult, and therefore more precious, than to be able to decide."

Now we observe many classic blunders over the years, and as students of decision making, we study these to try and understand what went wrong and find out how we can improve our own decision making, as well as that of others. Lets consider a few examples:

Why did president John F. Kennedy decide to support the Bay of Pigs invasion by a group of Cuban exiles intent on overthrowing Communist dictator Fidel Castro?

Why did NASA decide to launch the Challenger space shuttle in 1986, despite engineers concern about possible O-ring erosion due to cold temperatures expected on the morning of the launch?

Why did Coca-Cola's CEO decide to introduce New Coke in 1985, changing the vaunted formula on the company's flagship drink?

Sometimes we even see repeat blunders. People making the same mistakes over and over again, when they make decisions. Consider the US airline industry, one that's been incredibly low in profitability for decades. In fact, over the 30+ years since the 1970s, if we actually look at the industry and add up all the profits and losses of all the companies that have come and gone in this industry, we'd get a negative number! The industry as a whole has lost money.

Now this has led to some interesting observations on the part of investors in this industry. Take Warren Buffet, who, looking back to the day when the Wright brothers put the first plane in the sky, he once said:

"It seems to me it would have been the reasonable financial, if not moral move, to simply shoot down the Wright brothers on that day."

Richard Branson, the British entrepreneur, and owner of Virgin Airlines, has another interesting observation about this industry. He once said:

"You know it's very easy to become a millionaire, all you have to do is start as a billionaire, and then enter the airline business."

Well, despite all that low profitability, despite so many bankruptcies and failures, we see new entrants into this industry all the time. They keep trying, with similar strategies and business models of the companies that failed in the past. We see the same mistakes being repeated over and over again. What's going on with these decisions?

When we observe such highly flawed decision making. we often ask ourselves how they could have been so stupid? We often attribute the failure of others decision making to a lack of intelligence, lack of relevant expertise, or even personality flaws of the individuals involved. We might even question their motives.

Of course, we think of our own decision making failures in a different way. We tend to blame an unforseeable change in external factors. We don't attribute to factors within ourselves, such as intelligence, personality, or expertise. Psychologists describe this dichotomy as the fundamental attribution error. In short, we don't attribute correctly when we think about others versus ourselves. We have a bias in the way we attribute the causes of success and failure, particularly failure.

Of course, John Kennedy once asked how he could have been so stupid, in the wake of the Bay of Pigs crisis. He actually reflecting back, wondered how he could have made such a mistake?

As we look at others mistakes, perhaps we think of others failures as the blunders of unintelligent or incapable individuals, because we want to convince ourselves that we can succeed at a similar endeavor, despite the obvious risks. In most cases, differences in intellectual capability simply do not help us differentiate success from failure, when it comes to complex, high-stakes decisions.

As it turns out, most leaders stumble when it comes to the social, emotional, and political dynamics of decision making. They also make mistakes as a result of certain cognitive traps that affect all of us, regardless of our intellect and expertise in a particular field.

We maintain a belief in a number of myths about how decisions are made in groups and organizations. These myths get in the way of our abilities, both to understand how decisions are made and why failures happen, and our ability to improve our decision making. By clearly understanding how decisions are actually made in organizations, we can in fact begin to learn and improve our decision making capabilities.

Lets take a look at 5 myths that many people hold about critical decision making in organizations:

Myth #1, the chief executive decides. Well the reality is very different. Strategic decision making entails simultaneous activity by people at multiple levels of the organization. Political scientist Graham Allison once observed:

"Large acts result from innumerable and often conflicting smaller actions by individuals at various levels of organization in the service of a variety of only partially compatible conceptions of national goals, organizational goals, and politicla objectives."

In short, there are people at multiple points in the organization who are touching that decision. Each have some of their own interest, as well as some shared goals of the organization in mind. We can't look only to the chief executive to understand why a company, a non-profit organization, or school, embarked on a particular course of action.

Myth #2, Decisions are made in the room, meaning in some vaunted conference room where the leaders of the company assemble around a table to discuss important topics. Reality is that much of the important work occurs offline, in one-on-one conversations, or small subgroups, not around a conference table.

In the academic research, and the whole body of literature that looks at the demographic characteristics of a top management team in organizations, and tries to predict the decisions they will make, and the quality of their decision making process, based on their demographic characteristics. For instance, this research suggests if you have a diverse team, that you'll perhaps have more divergent thinking than if you have a homogeneous team.

Well there's great merit in that research, yet it sort of presumes that there is this conference table where people come together to make to make decisions. That's in fact not the case for many organizations. Decisions aren't simply made in the room. Management scholar James Brian Quinn is a scholar of decision making in large, complex organizations, and he once reported of an executive who told him:

"When I was young, i always conceived of a room where all these strategic concepts were worked out for the whole company. Later I didn't find any such room."

As it turns out of course, formal staff meetings do happen in most organizations. Yet they're not necessarily the forum where decisions are made. Formal staff meetings often happen, simply to gratify decisions that have already been made outside of the room.

Let's take a look at myth #3. Decisions are largely intellectual exercises. The reality of course, is that high-stakes decisions are not purely intellectual exercises, but in fact are complex social, emotional, and political processes. Social pressures for conformity, and human beings' natural desire of belonging, affect and distort our decision making all the time. Emotions can either motivate us, or at times paralyze us, when we make important decisions. Political behaviors emerge all the time, particularly in larger organizations. We see coalition building, lobbying, and bargaining. All this plays an important role in organizational decision making.

Of course, politics may not always be a bad thing. It sort of has a bad name when we think of decision making, as if organizations playing politics is somehow a destructive thing. Yet that's not always the case, as some element of political behavior can actually be constructive. Joseph Bower once wrote a very classic book on the way resource allocation decisions were made in organizations. That is to say, how do you take a scarce amount of financial capital, and decide what projects you want to invest in as a company, to help it grow and prosper?

Well he went in there and did something like what Michael would consider as an anthropological study of how these decisions were made, and produced a classic book on this topic in 1970. He actually went in and lived in these organizations, watching these managers, trying to understand how it was they decide to put enormous amounts of capital behind particular initiatives? He came to an interesting conclusion by saying:

"Politics is not pathology. It is a fact of large organization."

So it's simply there, whether we like it or not. He found that decisions rarely were the simple outcomes of financial return on investment type of analyses. In school, many business executives are taught to do financial quantifications of key decisions. They're sort of taught, let's take the numbers and figure out what money you have to put in, what kind of benefit you'll get out, and see if the return on the original investment makes sense for the company?

Those models are very useful in fact, when we look at it from a sort of academic standpoint. Yet when we look at reality, we found that although these models were sometimes used, they weren't the driving factor behind how capital was actually allocated in companies. He found that behavioral and political aspects of decision processes, aren't purely just functional, they can be helpful in making these processes work and helping the company come to these important capital allocation decisions.

He found for instance, there was a whole set of behaviors around jockying to present someone's track record, so that they can convince people they're the kind of credible person that should be sort of backed in a particular investment opportunity. In other words, as an executive, you want to convince people that you've done these before. "You can trust me with your money, give it to me and I'll make sure I guide us to the right kind of outcome in the future."

So it's sort of becomes this game, if you will, a political game to sort of convince people that your track record is sufficient enough that you can e trusted with the money. And lets not rely only on the financial analysis, because sometimes, after all, it's hard to come up with a financial case for these matters.

So politics is there, as always, and bower sort of makes this distinction and says, "Look, when politics is used to get a good proposal through, which has benefits for the larger organization, that's OK." It becomes destructive when people are putting their own interests ahead of the organization. Yet whether destructive or constructive, it's there and politics is always part of it. Decision making isn't purely an intellectual exercise. We aren't simply using some quantitative model to come to these decisions in real life. There's all of this behavioral stuff going on, which is critical and really important to the way decisions are made.

Myth #4 is that managers analyze and then decide. Well the reality again, is very different. Strategic decisions unfold in a non-linear fashion, with solutions frequently arising before managers define problem or analyze alternatives. Decision making processes, rarely flow in a linear sequence, as many classic stage models suggest.

Classic stage models say, "Look, we start by defining a problem, then we generate some alternatives, we evaluate those options, we come to a choice, and then we implement it." Well the reality is, in fact, very different. We don't see that kind of linear progression. Sometimes we even have solutions out in search of problems to solve, a topic that we'll cover in a later lecture.

In Robert's research, he found a number of managers who chose a course of action, and then engaged their team to conduct analysis of various alternatives. They do so for a number of reasons, in part because they're using the analysis to help persuade others of the merits of their decision.

At times, they might use the analysis for very different purposes. Analysis conveys a certain legitimacy on the process. We sort of expect our managers to go through cost benefit type analysis when making key decisions. We expect them to look at a whole bunch of alternatives, to collect a lot of information, to use formal techniques and perhaps conceptual frameworks, to help guide their decision making.

So what we see managers doing is sometimes drawing on a lot of information, bringing out a lot of alternatives, even after they've already made a judgment, since they want to sort of present what they view as a process that will convey legitimacy, that will show they'd gone through the right methods for making decisions.

Sometimes they've already made a choice and then they go through this analysis since they want to sort of check their intuition. They came to sort of a snap judgment, based on instincts, and they're not really sure if they're right or not, so they want to go see if they can do some more formal analysis of the options, to see if in fact that conforms or dis-confirms the judgment they came to rather instinctively. So there are lots of reasons why managers might rely on analysis after the fact. They're essentially deciding, then analyzing, before they go forward with implementation.

Consider the case of Lee Iacocca and the Ford Mustang. Introduced in the 1960s as one of the most explosive and successful new car introductions in the history of the US auto industry. In fact, he was president of Ford and reporting to Henry Ford II at the time, had a very hard time of convincing Henry Ford II to back his project for the new Ford Mustang. He ran into all kinds of opposition in the organization.

He conducted a great deal of analysis as a tool of persuasion, not of decision making. In other words, Iacocca had already decided the Mustang was a good idea, but he needed analysis to persuade others it was a good idea. So he went through the process of creating a set of financial calculations, of marketing research studies, to sort of back something that he already believed in, that instinctively he had already decided.

Yet the analysis conveyed legitimacy on the process, gave him another tool of persuasion and influence to get his point across, and ultimately convince Henry Ford II that the Mustang should go forward and be marketed to consumers. Well the Mustang turned out to be an enormous success and Lee Iacocca ended up on the cover of many national magazines. Unfortunately this angered Henry Ford II who didn't like that "grandstanding," the notion that Iacocca was getting all the credit to this great new vehicle.

Iacocca had won the battle, yetultimately lost the war. He'd gotten the Mustang to market as he desired, but in that effort in fact, he'd gotten on the wrong side of the Ford family. Ultimately he lost his job at Ford, going on to resurrect Chrysler. Yet his example is important, as it shows us that people don't always analyze and then choose. Sometimes they choose and then go through a process of analysis, for reasons other than coming to the right selection of a course of action.

Let's turn to our last myth, #5, managers decide and then act. Well isn't that the reality? Don't we decide and then go do something? Well no, in fact, strategic decisions often evolve over time and proceed through an iterative process of choice and action. A manger in an aerospace firm once described how a critical decision unfolded in his organization. In Robert's research, the manager told him:

"The decision to do this, didn't come in November of 1996, it didn't come in February of 1997, it didn't come in May of 1997. You know, there was a concept and the concept evolved."

We often take some actions, make sense of those actions, and then make some decisions about how we want to move forward. We'd go through this iterative process of thought and action. It doesn't linearly move from decision making process, to implementation process.

So these then are the 5 myths of decision making that we need to dispel before we can go any further in this course in trying to understand why flawed decisions happen, and how we can improve our decision making capabilities. The fact is that:

the chief executive doesn't decide alone,
decisions aren't simply made in the room,
decisions aren't largely intellectual exercises,
managers sometimes decide and then use analysis to persuade and influence others,
managers don't simply decide and then act, they can act make sense of those actions, and then make future decisions.

As we go through the course, trying to understand how decisions occur and what can go wrong when we make critical choices, we have to understand decision making at three levels of analysis. The individual level, the group level, and the organizational level.

At the individual level, we have to understand how the mind works. Sometimes our mind plays tricks on us. Sometimes we make biased judgments. On other occasions, our intuition proves quite accurate. We make poor decisions because of thee traps, these tricks that our mind plays on us, and some include for example, the sunk-cost effect. This involves throwing good money after bad, a topic we'll cover in a future lecture.

Our intuition can be very powerful, yet at times we make mistakes, as we match what we're seeing, to patterns in the past. We'll look carefully at intuition, how it works, how it helps us in our decision making, and how sometimes it gets us in trouble.

We'll also turn to the group level of analysis in this course. Here, we have to understand why teams don't always make better decisions than individuals. Groups hold great promise, because we can pool the intellect, expertise, and perspectives of many people. That diversity holds the potential to enable better decisions than any particular individual could manage. "None of us is as smart as all of us." We've all heard that expression.

Unfortunately many groups don't realize their potential. They fail to utilize the synergy among their many members, and in fact make decisions that are inferior to those that the best individual within the group could have made on their own. To understand group decision making failures, we have to examine problems that groups encounter, such as social pressures for conformity. These kinds of troubles encountered in group dynamics are essential in our understanding of how decision making works, and how we can improve our capabilities in this area.

Now finally we'll have to look at the organizational level of analysis. We have to understand how structure, systems, and culture shape the decisions that we make. The environment is an important factor. We don't make decision in a vacuum. Our environment shapes how we think, how we interact with those around us, and how we make judgments. Organizational forces can distort the information we receive, the interpretations of those data, and the way that communication takes place, or does not take place among people with relevant expertise.

Now, through it all, as we look at these failures, there's going to be an important theme, and as we go through all three levels of analysis. This theme is that many leaders fail, because they think of decision as events, not processes. This course has a fundamental process perspective. We think of the decision maker, sitting alone at a moment of time, pondering the decisions to make.

Yet as we said, most decisions involve a series of events and interactions that unfold over time. Decisions involve processes that take place inside the mind of individuals, within groups of people interacting, and across units of complex organization. In his study The Foreign Investment Decision Process, Yair Aharoni once said:

"Decision making in complex organizations is a very long social process, not solely an intellectual exercise. The process is composed of many small acts, carried out by different people at different points in time."

Now there is a key theme here though, which is that many leaders focus too much on finding the right solutions to problems, rather than thinking carefully about what process they should employ in making key decisions. When confronted with a tough issues, we focus on the question of "what decision should I make?" Yet we should first ask, Howshould I go about making this decision?"

See, we don't think in those "process terms" in most instances. We dive in, to solve the problem, rather than stepping back to think about what process we should employ. What intellectual process, what group process, what organizational process, is necessary for me to make a good decision?

The purpose of this course is to help us understand how to diagnose our processes of decision making, as well as to enhance those processes moving forward. We want us to look at the way we make decisions, to reflect on it, to learn from it, and to be able to improve our decision making capabilities.

We want to embrace this process perspective as we go through the course. We'll look at the cognitive process, the group dynamics in that process, and of course the organizational level of analysis. Yet through it all, we're trying to make us come to this understanding that in fact diving in and focusing solely on content, isn't necessarily the answer to coming to better choices.

Now lets talk for a moment about the organization of the course. Essentially, we'll follow these three levels of analysis. The course breaks nicely, stating with individual level, move to group, and then organization. In the next lecture, we'll begin by diving into the individual level of analysis. We'll start by talking about the topic of cognitive biases. The notion that we have cognitive limitations, that we're boundedly rational human beings, without some giant supercomputer in our brain. These cognitive limits impair our decision making at times.

Now this is not to say that we always fall prey to these traps. Our cognition is incredibly powerful, and we'll look at how it works so well in later lectures. Yet in the next lecture, we'll focus on those biases, beginning our understanding of the individual level of analysis with regard to our decision making. We'll look inside the mind.

Now throughout the course, we'll discuss case studies. We'll use them to illustrate the theories and provide practical examples of key techniques and processes. Our first case study will be about Mt. Everest, a tragedy that took place in 1996 when 5 climbers died on May 10 and 11. We'll look at the cognitive biases involved in their decision making, as they try for the summit of the world's tallest mountain.

Case studies are not the way many typical professors lecture, or how people often present theories and material on particular subjects. Yet Michael uses them in his method and thinks they help us learn. A case involves a thick, rich description of a series of actual events. Of course it's a synopsis of those events, so will not give us every last detail. Yet it will paint a picture that at first is purely descriptive. Then on top of that, we can layer our analysis.

We want to put ourselves in the shoes of the decision makers in that case, of the key people involved. We don't do it because we want to attack them, assign blame, or point fingers, but rather to understand how we might very well have acted in the same way they did, making the very same mistakes in those cases. We want to empathize with them, look at their mistakes, learn with them on how we can improve. So we don't go through these cases because we're trying to pick on particular leaders, to look at and expose their flaws, but we see these cases as learning opportunities.

In many cases we'll dive right into a case study to begin our discussion of a particular topic. From that case, we'll introduce a number of key concepts and frameworks. We won't always work inductively though, so will also work deductively at times. That means we'll start with theory, concepts, or frameworks, then using cas studies to illustrate those important theories of decision making, so as to bring them to life.

Now we'll use cases from a wide variety of subject areas, not always focusing on business. Though Michael is a business professor and will draw on many examples from the corporate world as we go through the course, we'll still look at examples from history, political science, mountain climbing, and firefighting, an entire range of domains where decision making is taking place, some more high-stakes than others, some more immediate, some more crisis like in terms of their atmospheres, others more routine. Mostly we'll focus on high-stakes choices, because they really help us identify key dimensions of critical decision making.

Over time we'll learn by comparing and contrasting case studies as well. Research shows that people learn key ideas more effectively when they attach those concepts to real world examples. We hope that the cases will make an indelible imprint, so that you remember the concepts and ideas that we discuss in the course, thereby coming to a deeper understanding of them over time.

Michael finds his own students will think back ofter 5 or 7 or 10 years, come back as alumni and say they remember that case about Coca-Cola or Wallmart, it's so vivid even today they recall the lessons the company went through, what that leader went through when they were making those decisions. That's the power of the case method, and so throughout the course, we'll sprinkle these cases throughout the lectures.

Now the last thing about case studies, is that we're using them in a lecture format. Yet when Michael is with his students, it's much more interactive. The case method is about the professor facilitating discussion among a group of students who have all read a case study, and are trying to analyze it. Now we can't do that here today, but we can still capture some benefits of the case method, and we'll point out something that the former dean of Harvard Business School, John McArthur, once said when asked what students learn when they study all these cases? He said:

"How we teach is what we teach."

It's a very interesting quote. In other words, yes we teach a series of theories and concepts and frameworks when we teach about decision making, strategy, or finance, using the case method. Yet we also are teaching in a different way. We're not simply teaching the theories, but how we teach, is what we teach.

In other words, we're asking questions, diagnosing situations, assessing an environment or organization. That process of critical thinking, is in fact what we are teaching. How we teach, the process of asking questions, of thinking critically, of diagnosing and assessing situations, of comparing and contrasting similar or different situations over time, that process of analysis, that's really what we're teaching.

So throughout the course, we'll tear these cases apart, we'll look at what went wrong and right. Hopefully as we go through that, in fact, what we're learning, is not just some theories of decision making, but we're learning a little bit about how to be more critical thinkers, how to learn from our mistakes, how to diagnose situations more effectively.

So with that introduction, we're ready to move forward. We're looking at the individual level of analysis, at this issue of cognitive bias, of these traps and tricks in a way, that the mind plays on us, these things that happen to all of us, whether we're expert or novice in whatever field we happen to be. They don't happen to "stupid people" but they happen to everyone. We'll look at the Mt. Everest case study to help understand these traps, these cognitive biases in more detail.

A bit of a disclaimer here: I have both a personal and professional interest in the subject, and have taught many courses on the subject of risk management, which is an aid to decision making. The importance of this disclaimer is that while I try to keep an open mind (it is a prerequisite to making good decisions and managing risk) it is only human not to get comfortable with some theories and to have an aversion (from mild to strong) for other theories - even though this tendency needs to be resisted!

That baggage out of the way, or at least acknowledged, let me say this about Michael Roberto's course: the field is frustratingly wide, making selection of material very difficult. A few minor and inevitable quibbles aside, I think Roberto has done an admirable job, trying to bridge the waterfront, much like Colossus. Again, time is a limit, and it is a perpetual challenge to know how deep to penetrate each subject that opens up, but again, a tip of the hat to the good professor - within the time available, he goes deep enough to interest those of us with a background in the matter while not overwhelming those less familiar with some of the more esoteric theory, not all of it relevant or universally accepted. My only criticism of the content is that I believe a caveat should be made along the lines of famed statistician George Box - "All models are wrong but some are useful." For example, Diane Vaughan discounts the Group Think principle in her seminal work, The Challenger Launch Decision (Space Shuttle) while others, such as James K Esser are more inclined towards the groupthink hypothesis. The point I am trying to make is that we cannot use these models blindly - there are too many permutations and combinations of circumstances to throw neatly and economically models off course.

That said, what I greatly enjoy is Roberto's unequivocal enthusiasm for the subject. I would be pulling your leg if I said he is an elegant lecturer. Frankly, he is a bit awkward, almost gauche in some of his movements - but this is HIS style, and while you may disagree, I rather like it. It is genuine, it reflects his total enthusiasm, which is infectious, and it is - well, at times, quite funny - in an entertaining sort of way.

Bottom line - this is a keeper. See my review at the company website. It was the first one up, which means it's on the last page.