NeuroLeadership

How The World's Best Leaders Use Psychology To Win

Sam Page

• Publisher: NeuroTriggers
• Year: 2017
• eBook ISBN: 9780994390264
• Edition: 1
• Topic: Business
• Subtopic: Leadership
• Index: Business

Science has discovered many things about people in the workplace; how output can be increased, happiness improved, patterns of communication optimized. But these research insights rarely make it outside the lab. This book bridges that gap.

Organizational Psychologist Samual Page artfully weaves psychological research together with practical application. He marries the science of leadership with its implementation. This book is written for the entrepreneur, the CEO, the executive, and the senior manager. In short, for leaders in the real world.

Filled with fascinating examples, case studies, and anecdotes from some of the most effective leaders and forward thinking companies.

1

The Psychology of Decision Making

Clearly, the decision-making that we rely on in society is fallible. It’s highly fallible, and we should know that.

~ Daniel Kahneman

Ask any leader how they go about making an important decision, and you will likely hear some variation of this response: I weigh all of my options carefully, apply logic, and choose the best option. That’s what every person wants to believe. Nobody wants to think that they’re held hostage by things like emotion, fear, or cognitive biases.

Moreover, if you ask most leaders to rate their decision-making ability, they’ll rate themselves highly. Just as when, if you ask a room full of people to raise their hand if they think they are an above average driver, the majority will. Of course, statistically, this is unlikely1.

We also know from studies and real-world examples that leaders will rate their decision making as high-quality even when the decisions they make are reckless and ill-advised.

Let’s look at one quick example. A 2012 study in the Wall Street Journal1 looked at the decisions made by leaders at Lehman Brothers prior to their bankruptcy. Lehman Brothers had borrowed money in order to invest in mortgage-backed securities and a variety of other investments. By the time the economy crashed, the company had borrowed 31 dollars for every one dollar of equity they had.

In hindsight, the decision to borrow so much seems foolhardy at best. To give them the benefit of the doubt, perhaps the leaders at Lehman Brothers felt they were giving the company an opportunity to grow. At the time, they were generating tremendous profits. However, it is now clear that they made poor decisions that directly contradicted not only the company’s interest, but also their own. But they did it anyway. Why?

How our brains make decisions

In Nobel Prize winner Daniel Kahneman’s book Thinking, Fast and Slow2, he describes two basic kinds of decision making:

1. System 1 thinking: System 1 thinking is rapid and requires little conscious thought. The brain makes a series of quick assessments and judgments based on things like body language, tone of voice, and an assortment of cognitive biases. Cognitive biases are mental shortcuts. Mental shortcuts can be useful in that they allow your brain to conserve energy. They also allow you to make split-second decisions—an evolutionary necessity if, for example, you run into a tiger and need to make the immediate decision to fight or flee. This is something we will talk more about later in the book.
2. System 2 thinking: System 1 thinking involves deep thought, cognitive assessments, and value comparisons. Unlike System 1 decisions, System 2 decisions tend to be carefully evaluated.

Most people believe that they use System 2 to make decisions, but the evidence doesn’t support that conclusion. Not only does using System 2 require the decision maker to overcome pre-existing biases and misconceptions, it is also easily derailed.

Adhering to System 2 decision making requires attention. One classic example provided by Kahneman is that of a group of people who were asked to watch a video of a basketball game.3 They were instructed to count the passes made by the players on one team while ignoring the other team. In the middle of the video, a woman in a gorilla costume walks slowly into the center of the court and dances – surely something that would be obvious to even the most casual observer. Yet over half of the people who viewed the video didn’t see the gorilla. They had been told to ignore everything other than the white team’s passes, and so their brains did.

Interestingly, once people were told about the gorilla in the video, they saw it every time from then on, even if they were shown a different version of the video. From that point forward, they could not not-see the gorilla.

Cognitive Biases

Cognitive biases are another example of System 1 thinking. Hundreds of cognitive biases have been discovered, including:

• Status Quo Bias: The role of the Status Quo Bias in decision making was studied in 1988 by researchers William Samuelson and Richard Zeckhauser.4 Their study showed that, more often than not, participants would choose to stay with the status quo when presented with a new alternative. That preference held true when it came to politics (re-electing incumbents), employment (staying in their current job), and purchasing decisions (sticking with a familiar product.)
• Sunk Cost Fallacy: Robert Knox and James Inkster5 examined bettors’ confidence in bets they placed on a horse race, and found that those who had already placed their bets had a higher degree of confidence that they had made a good choice than those who had not yet placed their bets. In other words, when we have made a commitment to something and invested time, effort, and money, we’re likely to double down on that investment. We do this even when evidence suggests that another course of action might be preferable.
• Loss Aversion: This is where we are more inclined to place a stronger focus on avoiding losses than acquiring gains. This is what makes people place a higher premium on things they already have than on things they might get at a later date.

One of the trickiest things about cognitive biases is that we’re all susceptible to them. We tell ourselves that we base decisions on logic, but as Kahneman says in his book, unless something gives us pause—makes us switch from System 1 to System 2—we’re likely making important decisions based on biases instead of brainwork.

So why does this matter?

Faulty decision-making processes wreak havoc within organizations. When listing qualities and skills that are important in leadership and management, most hiring professionals mention resilience and people skills, as well as specialized, industry-related skills, but decision making often does not even make it onto the list. That’s unfortunate, because a leader who lacks the ability to make good decisions runs the risk of causing, or contributing to, big problems in their department or organization.

Let’s look at an example. The Eastman Kodak Company had, in the 1970s, a 90% share of the film market in the United States. In 1975, they developed the first technology to make di...

Table of contents

• Title
• Copyright
• Table of Contents
• Preface
• 1. The Psychology of Decision Making
• 2. Using Psychology to Build Credibility
• 3. Using Psychology to Influence and Persuade
• 4. The Psychology of Modesty and Humility in Leaders
• 5. The Psychology of Power
• 6. Using Psychology to Build Resilience
• 7. The Psychology of Emotional Intelligence
• 8. The Psychology of Motivation
• 9. How to Use Psychology to Enhance Goal Setting
• 10. How Psychology Can Help You Improve Productivity
• 11. Using Psychology to Recruit Top Talent
• 12. Using Psychology to Enhance Feedback
• 13. Using Psychology to Handle Conflict and Deal with Difficult People
• 14. The Psychology of Teams
• 15. Using Psychology to Influence Culture
• 16. The Psychology of Change
• 17. The Psychology of Millennials
• Conclusion
• Citations