While participating in many pension discussions around the world, I have been trying to understand why some very intelligent people end up making stupid mistakes. It is too simple just to claim that they are either stupid or feathering their own nest.
Rather, there are some powerful human biases at play that affect all of us.
Most people are intelligent, well-meaning and care about others, so it is too simple to argue that mistakes are a consequence of stupidity or malice. Instead, we need to look wider and at human nature. There are some strong biases at work and even the most brilliant people have them and they too make stupid mistakes. Let’s have a look at some infamous mistakes.
During his presidency, John F. Kennedy gathered some of the smartest people in his administration –all young, highly educated and very successful. They had given up stellar careers in the private sector for the privilege of serving their country. A constellation of more brilliant people would have been difficult to find. Yet they made a series of bad mistakes, leading up to the Bay of Pigs disaster in 1961 that escalated to the Cuban Crisis and put the world on the brink of a full blown nuclear war a year later. 10 days before the Bay of Pigs invasion, a now famous meeting took place. The only person in the room who opposed the plan was Senator William Fulbright, an outsider invited by the President. Senator Fulbright gave a speech to the group saying that it was a terrible plan and gave all the reasons why it was so bad, but it just made Kennedy’s advisors more steadfast in their decision to invade.
In November 2008, Queen Elizabeth II opened a new building at London School of Economics and Political Science, one of the world’s top universities. The Queen posed a simple question to one of the professors: “How come nobody could foresee [the financial crisis]?” The academics could not answer this on the spot, so they replied to her in writing six months later. To simplify, the letter said that they could not have foreseen the crisis because their models did not include crises. This was an honest explanation but it begs question: why do so many brilliant investment professionals today continue to use these models?
Behavioural biases and groupthink
Sometimes we use not understanding as an excuse to justify our professional standing. As the American writer Upton John Sinclair, in 1934, put it: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” But I think it is too easy to explain stupid mistakes as a consequence of conscious decision.
Knowing the relationship between action and reaction gives us a sense of control, which makes us feel good inside. We love this sensation so much that we end up seeing relationships where there are none. The mental attraction of a simple, but superficially plausible, explanation is very strong as it creates that positive feeling of being in control. We want it to be true, so it becomes true to us and we ignore all the evidence indicating otherwise. This is an example of human biases at work and makes brilliant people err just like the rest of us.
When people get together in a group, two additional factors enter the equation. The first relates to how we react to authority and the second is our need to conform with the group. A homogenous group of individuals will end up facing the most dangerous of all biases – groupthink. Groupthink always lurks nearby as we tend to form groups (or tribes) of likeminded people. The leader of the group sets the tone and we usually follow them because we don’t want to leave, or be ostracised from, our tribe.
Our biases are non-discriminatory and affect us all, no matter how smart we are or what kind of upbringing we had. To paraphrase Sinclair in a contemporary way: it is difficult to get an individual to understand something, when behaviour biases and groupthink effectively blocks his/her understanding of it.
Well, what can we do about it?
To avoid making brilliant mistakes we need to focus on both who makes decisions and how they do it. We need a decision-making team that demonstrates diversity in thinking and we, as a group, must have an open mindset and be humble enough to be able to challenge our fundamental beliefs. We also need to have a decision-making process that includes de-biasing tools such as the Devil’s Advocate, Scenario Thinking and Pre-mortem.
It is very intimidating to de-bias ourselves by challenging the foundations on which we have based our careers and business models. When making important decisions, we are in an unbalanced fight with our biases and groupthink. We need to stay vigilant and never stop de-biasing ourselves. It doesn’t matter how successful we have been, how intelligent we are, how good our business is – our human nature is never far away. Our biases are seductive and we can easily get swept away by them, which will lead to stupid mistakes.
Biases are not completely bad. In fact, they are a blessing for many aspects of our lives and they define many human qualities. They are the driving force of progress, innovation, compassion, love and happiness. We just need to be able to manage them and understand their potentially negative impact when making decisions in politics, academia and business - even brilliant people ends up making stupid mistakes. Just making fewer mistakes is a big step forward; we will never be perfect. This our biases will make sure of.