Why good people make bad decisions
Tuesday 12 September 2006
Five kinds of faulty thinking contribute to bad decision-making, Professor Steve Salbu, Dean of the College of Management, Georgia Institute of Technology, USA, told Trinity students, staff, alumni and friends at a business breakfast this morning.
In the first of his many speaking and teaching engagements over the next three weeks as Gourlay Visiting Professor of Ethics in Business, Professor Salbu, said we fool ourselves through:
- being overly optimistic – we think things will go better than expected
- being overly confident – we think we are better than we really are
- self-serving bias – we don’t view information objectively but interpret it in a way which benefits us
- cognitive dissidence – we disregard information that conflicts with our previously held ideas
- reluctance to ignore ‘sunk costs’ – we don’t want to ‘waste’ money and time already invested in a project.
By way of illustrating each point, Professor Salbu used the hypothetical example of a pharmaceutical company executive who, having spent three years and millions of dollars developing a new wonder drug, is preparing to release it on the market when a relatively unknown scientist suggests the drug may be more dangerous than previously thought. It was easy to see how, using these flawed thought processes, the executive could decide to proceed with the release, regardless of the warning.
While responding to a wide range of questions, Professor Salbu strongly endorsed the value of a liberal arts education in equipping students with intellectual rigor and sound thinking skills. ‘This fits well with the University of Melbourne’s current move towards broad undergraduate courses,’ he said.
Thanking Professor Salbu for providing his audience with much food for thought, the Director of Development, Ms Clare Pullar, noted that the Gourlay Visiting Professorship will continue to bring stimulating academics like Steve Salbu to the College on an annual basis.