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In their research into cognitive biases and how they affect strategic decision-making, Karan Sonpar and his colleagues have taken the case of the Irish banking crisis. There are lessons for all organisations, large and small, he tells Ann O’Dea


Most management theory, and understanding of man- agement, is based on the rational actor model – that human beings are rational and make logical, scientific decisions – yet history is replete with examples that ‘cognitive biases’ can affect the quality and content of decision-making. That is according to Karan Sonpar, who lectures in behavioural strategy and leadership at UCD School of Business. He was just one of 18 of the thought leaders on facul-


ty who gathered in March at the Executive Edge event at the School, to present new ideas that could be employed to improve leadership effectiveness, innova- tion and growth strategies. According to Sonpar, those ‘cognitive biases’ can take


the form of escalating commitment to failing courses of action, rigidity in the face of external threats, over-opti- mism, resistance to challenge assumptions and hubris. When we meet, he points to a recent Harvard


BusinessReviewarticle penned by Professor Dan Ariely of Duke University. “Ariely goes as far as to argue that our cognitive and intellectual limitations imply that we are more like Homer Simpson than like Superman.” “By cognitive biases I’m speaking about issues related


to thinking, attitudes, feelings, perceptions, and how they affect what we do, and what takes up our atten- tion,” says Sonpar. “A lot of these biases tend to operate on a subconscious level so we are not aware of them. It’s only retrospectively we ask, ‘Oh my, how did I do that?’.” Classic examples of cognitive biases are escalating commitments, such as those countries that want to hold the Olympic Games and World Games – the projected losses keep rising but they will keep persisting with it. “Another example is rigidity in the face of crisis, so


when something is going wrong we tend to withdraw, to find fault with the external environment,” he continues.


“Often, if it is the seniormanager who hasmade the deci- sion, they don’t want to admit they made the mistake, or they genuinely believe in it, or hope things will change. It’s a classic example of craziness. You keep doing the same thing and hope like hell for a different outcome. “The more dangerous cognitive traps are actually


things like the success paradox. You’ve been successful, and once you’ve been successful you want to exploit that success and keep doing the same thing again and again. “That can be quite dangerous because if your external


environment is changing, and your success is based on assumptions about the current environment, these will not hold true in the long-term. Here Sonpar references Danny Miller’s 1990 book, The


Icarus Paradox: How Exceptional Companies Bring AboutTheirOwnDownfall. “He refers to the dangers of flying too close to the sun – what brings you up may eventually bring you down. “When we look at our decisions, a lot of our decision- making can be quite erratic. We often don’t go through a very detailed fact-finding process, we just pick up the phone and ask somebody ‘What should I do?’ and then do it. Or we do it because someone else is. More often than not that works, but it can lead to disasters too.” This is where behavioural economics and behavioural


strategy come into the picture. “This has been around for at least 40 or 50 years, but it was considered a very fringe, ‘out there’ kind of a discipline with little respect,” says Sonpar. “Yet when you look at the world today, I would argue that a lot of accountants and bankers and financiers are actually artists. What they do is more of an art than a science as such. “Much of the arrogance around mathematical model-


ling and hard disciplines has somewhat gone now, but if you look back at the last 10 years, we had the dotcom


38 Irish Director Summer 2011


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