University of Chicago Professor Richard H. Thaler, who was awarded the Nobel Prize in 2017 for his work in research incorporating human psychology and social science into economic analysis, recently sat down with McKinsey Quarterly to break down the aspects of decision making in the corporate world and how to best improve those practices.
Thaler discussed several considerations when breaking down biases in the business world to challenge assumptions and change behaviors that can work against business leaders’ best interests. Applying basic principles of behavioral economics and behavioral finance can lead to better outcomes when allocating resources or making difficult decisions.
Thaler discussed the importance of writing things down when making the decision to take a risk on a business venture. Writing down goals, what the company is actually trying to achieve, assumptions of why to take the risk can help eliminate hindsight bias and help companies distinguish between bad decisions and bad outcomes.
Thaler also spoke to the benefits of “nudging the corporation” for desired outcome. “How are we framing the options for people?” Thaler said in McKinsey Quarterly. “How is that influencing the choices they make?”
Introducing intellectual diversity into the workplace is also critical to better decision making. Employee pools composed of those who think differently and provide alternative perspectives to one another will complement leadership. Those companies are the ones that learn.