Emotional intelligence, self-awareness and commitment tounderstanding others are traits of a good leader. These leadersmake sound decisions based on the best available data. But what ifthe natural automatic workings of the mind interfere with thesetraits? The research of Daniel Kahneman, a psychologist and 2002Nobel Prize winner in economics, provides useful insights to avoidcognitive traps to strengthen decision-making.

Kahneman's best-selling book, “Thinking Fast and Slow,” providesa simple model describing two systems of the brain. Fast-thinkingis impulsive, automatic and intuitive. Slow-thinkingis thoughtful, deliberate and deeply analytical. The legacy ofhuman evolution had inherent survival advantages. Fast-thinkingallowed humans to take rapid action without need for in-depththinking. Slow-thinking activates when the mind faces a situationit can't automatically comprehend and involves conscious mentalactivities such as self-control, choice and deliberate focusedattention. You can improve strategic decision-making and increaseself-awareness by appreciation for and avoidance of, fast-thinkingcognitive traps, a number of which we discuss herein.

Snap judgments are the domain of fast-thinking. We tend tooversimplify analyses of situations, without appreciating that itis occurring. Heuristics, which are shortcuts or “rules-of-thumb,”allow for quick decisions, but we often overuse these helpfulprocesses. With the trap of the substitution heuristic, we answeran easier question instead of the one that we need to answer. Inrecruiting, for example, the tough question: “Will this person besuccessful in the job?” which requires significant study of theirbackground and history of success. This is replaced by the easierquestion of: “Does this person interview well?”

Availability heuristic overestimates the importance orprobability of what is most personally relevant, recently heard orvividly remembered. Managers conducting performance appraisals frommemory are more likely to recall exceptional instances of anemployee's performance (positive or negative) than general behaviorand will weight that more heavily. They give more weight toperformance during the three months before the evaluation than theprevious nine months.

Confirmation bias is our natural unconscious tendency to seekand rely on information that confirms our beliefs and downplays ordismisses information that might change our minds. An effectivegroup decision-making tool is to have the person proposing anoption to argue against it. An opponent of the proposal can inturn, in good faith, argue for it. Moreover, research shows thatunconsciously biased decisions can fit an individual'scircumstances, rather than benefit the organization as a whole. Forexample, managers who rotate quickly through positions tend tofavor projects with short-term paybacks, when longer-term projectswould create greater value.

In the endowment effect, just owning something makes it feelmore valuable to the owner. In the related loss aversion effect,people would rather leave a situation as is, rather than risk aloss. Strategists are generally better at identifying the risks ofnew businesses, than appreciating the risks of failing to change.Analyzing existing businesses, products and operations with thesame scrutiny as a new investment, will help avoid this trap.

We all too often make avoidable statistical mistakes thatnegatively impact decision-making; even statisticians do. Onemistake, base-rate neglect, is judging probability without takinginto account all relevant data. This medical test questionillustrates: A serious, but rare, disease affects one in 1,000people. How worried should someone be with a positive result from a95% accurate, generally administered test? Most would believe thatthey had a 95% chance of having the disease, as did half theHarvard medical students answering this test question. However,because the base rate is very low (1/1,000), the actual likelihoodis roughly 2% and the chance of a false positive is 98%.

Leaders must discern true cause and effect. Kahneman's 1960sIsraeli Air Force analyses demonstrated how considering regressiontoward the mean can help. People generally have an average (mean)level of skill at any given point. Through continuous learning andeffective coaching, that skill level should improve over time.There are, however, always differences between the trend-line andeach individual performance of that skill; some better, some worse.This variability fits expected probability distribution. Kahnemanhelped Air Force instructors realize that variability in pilotperformance from flight to flight followed expected statisticalvariations. Moreover, to their surprise, their general pilotfeedback after each flight had no real effect. Kahneman's workhelped instructors create a more insightful, longer-term view offeedback, coaching and training.

Kahneman's research is extremely valuable to leaders as theyseek continuous improvement in strategic decision-making. Vigilanceabout our own cognitive processes can make for better managers,decision-makers and, indeed, leaders.

Stuart Levine is chairman and CEO, Stuart Levine& Associates, EduLeader LLC. He can be reachedat 516-465-0800 or [email protected].