The Case for Behavioral Strategy - Summary

Executive Summary
The case for Behavioral Strategy
Dan Lovallo and Olivier Sibony

Decision making being a central part of business processes, is undoubtedly one of the main areas where people go wrong. If not monitored, these decisions can easily fall prey to illogical and irrational biases/ errors and detriment the progress of the business/organization. This research article sheds light on the tendencies for decisions to go wrong, the types of stimuli that cloud judgements, the types of biases/errors faced during strategic decision making and ways in which these can be overcome without hassles. It mainly discusses the cognitive biases taken into consideration unconsciously, during the process of decision making. After careful analysis of 1048 business decisions over 5 years, the authors fondly criticize the concept of focusing only on the instant on decision making and not the entire process that leads to it. The research shows that, various other factors like Industry/Company variables, Quantity and detail of analysis performed and Quality of the process to exploit analysis and climax in a decision also play a big role in good decision making. The article clearly states that the existence of biases in business decision making briefly roots back to habits, training, selection and work culture. Biases are hard-wired into the human nature and hence become an unavoidable part of decision making. Efficient strategic decisions call out to avoid these biases as well as, prevent them from happening to someone else too. The article classifies such biases as –
Action-Oriented Biases 1. Excessive Optimism 2. Overconfidence 3. Competitor Neglect
Interest Biases 1. Misaligned Individual Incentives 2. Inappropriate Attachments 3. Misaligned Perception of Corporate Goals

Pattern Recognition Biases 1. Confirmation Bias 2. Power of Story