June 24, 2021

How Do Your Employees Make the Right Decisions?


Recently I read an article in Barron’s (May 31, 2021) titled ‘Adding Discipline to Decisions’, an interview with Daniel Kahneman who also wrote a book called ‘Noise: A Flaw in Human Judgment’.  Kahneman, who won a Nobel Prize in Economics in 2002, changed our understanding of how people think about money and make financial decisions.  He and his research partner rejected the notion of the “rational actor” and instead mapped the myriad of errors people make due to predictable biases and behavioral tendencies.  In my view the same could be said for hiring managers, recruiters interviewers and all of your employees. 

Kahneman sites two main components that contribute to errors in judgment, bias and noise.  He then goes on to say that noise is more complicated and a bigger problem for varying decision making than bias.  There are three types of noise: Level. Occasion and Pattern.  An example of level noise could be optimists vs pessimists, Occasion Noise could be your mood or outcome of a prior decision and Pattern Noise can be how differently people see the world. 

How can people make better decisions?  Kahneman’s answer is by Decision Hygiene.  In short, washing your hands reduces your odds of getting sick.  You are not targeting one specific disease or virus like a pill or vaccine does.  He says a lot of the practices for improving judgement are about avoiding biases, which can be too specific.  “Decision hygiene is very similar to disciplined thinking.”  “One way to discipline your thinking is independence—making sure that if you’re consulting different people, they are independent of each other.” One example is having three people interview the same candidate separately then meet to discuss their findings on an individual basis.  It can also help in a situation like this, if the individuals can rank the candidates by least risky to most risky to hire according to another of Kahneman’s recommendations. 

Every employee you hire has to make decisions.  Some positions make a lot more critical decisions that affect the organization positively or negatively than other positions.  But, all positions make daily decisions.  From our perspective, in addition to what Kahneman finds here, cognitive abilities and behavior traits (which he sites) contribute to how employees make decisions.  Making good decisions on the job can be the difference between a good and bad performing employee.  I can simplify four types of decision makers from a cognitive and behavioral perspective.  One (S), slow and poor abilities to reason and problem solve; two (F), quick and good deductive reasoning and problem solving abilities; three (A), people that do not like to take risks, slow to decide and over analyze before making decisions; four (Q), people that take risks, quick to decide and not afraid to be wrong.  This is a simplified overview and there are other factors I could add.  Depending upon the position the odds could be better if you hire an FQ vs an SA or an SQ vs an FA in addition to other desired traits.  If your managers understand this information, they will do a better job of hiring, managing and development. 

If you have read prior newsletters or spoken to us, you will hear us mention that assessments and appropriate selection methods will increase your odds of making a more informed decision.   If you employ what Kahneman is professing along with our suggestions, you will have less bias and less noise which increases your odds of hiring the right candidate for the job.  Please contact us if you would like to discuss any of these topics.