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Does More Information = Better Decisions?

Does More Information = Better Decisions?

I love Malcolm Gladwell: his book Outliers is one of my all-time favorites. When Gladwell talks, I listen: even if I don’t agree with his views, they’re always incredibly thought-provoking.

You probably know that decision-making is a subject that’s close to my heart: it’s a critical part of strong leadership. So when I heard Gladwell on a podcast interview expounding his views on decision-making in the modern world, I paid close attention. Gladwell said that the proliferation of information isn’t making it any easier for us to make good decisions. 

On the contrary, he thinks our decisions are actually becoming worse. He says that reality can be distorted by an excess of information. For example, we might have a dozen criteria for making a decision, but we don’t know how to weigh those criteria properly. 

It’s hard for us to focus on too many things at once because there’s only a limited amount of space in our heads. And as Gladwell says, “We clutter our decision-making process with extraneous information in the hope that it makes us better off in the end. It’s a fool’s game.”

His conclusion: focus on what’s most important. Too much information makes it harder for us to process the information we actually have. 

I may be suffering from a little confirmation bias here, but this is 100% aligned with my experience of decision-making. This is why my mantra of simplicity and focus really rings true in most areas of leadership. 

We have so much information available. It’s cheap and instantaneously available, yet it seems to be much harder to get to the objective truth. The social trend today seems to be that, if any individual thinks something is true, then that’s a perfectly acceptable version of the truth. 

It’s not. It’s just an opinion – and opinions are often plain wrong.

Reliable sources of information are now much more difficult to discern. I think one of the most fun expressions I’ve heard in years was the phrase that came out of American politics several years ago: “alternative facts”. 

I remember a press conference held not long after that phrase was coined. After an NBA basketball game, a journalist posed a question to Mike D’Antoni, the head coach of the Houston Rockets. When asked to comment on the fact that the Rockets had lost five of their last eight games, D’Antoni said, “Actually, we won all those games. I’m going with the alternative fact thing.” Gold! 

I just want to briefly make two important points about the information that gives us false comfort when we make decisions: 

1- We have a strong tendency to overvalue quantitative data

If it appears on a report that’s been generated from a database… if it’s a statistic that’s been generated as a result of academic research… even if it’s represented numerically, rather than verbally, then we’re much more likely to believe it and place overweight importance on it when we make a decision. 

We tend to not question the source as much as we should. For example: 

  • How did that information get on the database in the first place? 
  • Was it through a manual process (which is error prone by definition)? 
  • How accurate is it likely to be? 
  • What doesn’t the data describe or capture? 
  • What assumptions lie behind it? 
  • What was the research methodology used to support the hypothesis? 

I spoke in Ep.266 of the podcast about the number of research papers we all took for granted, that are now being discredited due to either poor methodology or, in the worst cases, fraudulent manipulation of the data.

2- The fallacy of the implied level of accuracy

I first became aware of this when I began to critically analyze business cases to support investment decisions over 20 years ago. Let’s consider an example: 

  • Let’s say a business case is constructed to seek approval for a potential investment of, say, $50 million. 
  • This will come with a stated NPV, a single number that projects the likely positive return over the life of the investment.
  • This hypothetical  project might have an NPV of, say, $4,327,000
  • Which says that, if we approve the investment of $50m that will generate a profit over its life of $4,327,000
  • Think about the psychology of this NPV number. Because it’s expressed in the business case to the nearest $1,000 (i.e. not $4m, or even $4.3m: $4,327,000), we psychologically ascribe a level of accuracy to that outcome that simply isn’t warranted. 
  • It makes us feel as though the outcome is much more likely to eventuate because it implies a rigor in the underlying analysis and financial modeling that simply isn’t there. 
  • When you look really closely at the underlying assumptions, there are often potential swings of many millions of dollars, depending on which risks materialize. 
  • So in examples like this, quite often if the NPV would be more accurately  stated to the nearest $1 million rather than $1,000

The best decisions aren’t the ones that are made with limitless information… they’re the ones that are made using astute judgment about which pieces of information are most critical to the decision, and how much weight to put on each of them.

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