RENEWALism is about renewing human consciousness so that we can live and work more mindfully. One of the key aspects of mindful living is understanding how we make decisions. This post will explore the insights of Nobel Prize-winning psychologist Daniel Kahneman, whose work revealed that human beings are not always rational in their decision-making. In particular, we will focus on how his work can help us to overcome the fear of risk, which can prevent us from making choices that would lead to greater happiness and fulfillment.
One of the most important findings of Kahneman’s research is that people are more afraid of losses than they are attracted to gains. This means that we are more likely to avoid taking a risk that could lead to a loss, even if the potential gain is much greater. This phenomenon is known as loss aversion. For example, imagine that you are offered a gamble in which you have a 50% chance of winning $100 and a 50% chance of losing $50. Even though the potential gain is twice as large as the potential loss, most people would choose not to take this gamble because they are more afraid of losing $50 than they are excited about winning $100.
This tendency towards loss aversion can have a profound impact on our lives, preventing us from taking risks that could lead to greater success and happiness. For example, it might prevent us from starting a new business, investing in a new opportunity, or even just trying something new… like creating a Conscious Corporate Culture with RENEWALism habits, for example.
The good news is that Kahneman believed that organizations could overcome these decision-making biases by putting systems in place to guide better choices. A Systemic RENEWAL Workshop (for example) can help identify how to do this.
It is about Changing Perspective
- One way to overcome loss aversion is to reframe our thinking about risk. Instead of focusing on the potential losses, we can focus on the potential gains. For example, instead of thinking about the $50 we might lose in the gamble, we can think about the $100 we might win. This simple shift in perspective can make us more willing to take risks.
- Another way to overcome loss aversion is to think about risk in terms of the overall portfolio of our lives. Just as a financial advisor would recommend diversifying a portfolio of investments, we can diversify the risks we take in our lives. This means that we shouldn’t be afraid to take some risks in some areas of our lives, as long as we are balancing those risks with more conservative choices in other areas.
Kahneman also identified other biases that can impede effective decision-making in organizations:
- Groupthink: This is the tendency for groups to make decisions that are not in the best interest of the group as a whole. It happens when individuals are reluctant to raise ideas that might be different from what they perceive as the emerging consensus.
- Confirmation Bias: This is the tendency to search only for data or evidence that supports a hypothesis.
- Anchoring: This is the tendency to make decisions based on past (or even irrelevant) information.
It is easier for Organizations
Kahneman – together with McKinsey partner, Tim Koller, and Dan Lovallo – believed that organizations could overcome these biases by putting in place rules and processes to guide better choices.
While the best solution would be to build a culture of debate (as we have always done in ancient oriental practice and learning systems), fostering a strong obligation-to-debate can take years (which can be reduced significantly via a culture of RENEWALism). As a workaround, some of the rules for quick-fixes are:
- Assigning someone to be a devil’s advocate in group discussions to ensure that all sides of an issue are considered.
- Insisting that the most senior people in a meeting don’t express their views until everyone else has had a chance to speak, to avoid “sunflower management,” where people try to guess what the boss wants to hear.
- Creating a rule that every strategic initiative in the budget must be fully funded, to avoid anchoring decisions to past budgets.
By understanding and addressing these decision-making biases, we can make more rational and informed choices that will lead to greater success, both in our personal lives and in our organizations.
The starting point, of course, is to be open to begin the process of RENEWAL. Once that gets into the organization culture, there is no need for measuring RoI. Returns manifest as an attitude; in the form of overall business growth.
As Kahneman suggests, we can put systems in place to help us make better decisions and achieve our goals. We can create enabling environments. We can embrace risk in a mindful and responsible way, leading to significantly improved performance, productivity, and profitability. All we need, is to take the first step – to renewal.