SPECIAL GUEST BLOG By Harley Murphy, Strategic Change Mentor, Mentors.ie.jpg)
When, on 10th July 2007, Chuck Prince, the CEO of Citigroup Inc, then the largest global financial services company, was asked whether he had any fear that the financial boom might be coming to an end, he was infamously quoted as saying:
"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you got to get up and dance. We’re still dancing.”
It turned out that the music stopped pretty soon for Chuck Prince and in November 2007 his last dance was a two-step out the door of Citigroup. Citigroup’s share price went from around USD $55 in Jan 2007 to under USD $4 in September 2010. We know, of course, that Mr. Prince was just one of many bank CEOs that were ejected once the hangover from the wild dancing on Wall Street and elsewhere took hold. In Ireland, the Lord of the Dance was, of course, Sean Fitzpatrick of Anglo but he had a major cast of others with him.
How could so many apparently bright and experienced senior executives, across much of the globe, make such a series of stupid ‘irrational’ decisions? Particularly when history provided contrary facts and when even signs of major cracks in the whole financial fabric had begun to appear.
In this piece the focus is on the decision process itself and how our understanding of this has developed, particularly in relation to advances in neuroscience. Unfortunately, it would seem that many of those in powerful positions in business and our society still operate on the basis of the old paradigm as it relates to decision making.
That old paradigm was outlined in the 17th century by Rene Descartes, who is considered the father of modern western thought and the founder of the rational method. He championed the concept of dualism as it relates to mind and body. He believed that the mind was non-material and only existed in humans. Our passions or emotions were associated with the body and were therefore seen as animalistic. Man differentiated himself from other species by reasoning, so this was considered of a higher order than emotions, which consequent ‘feelings’ only distracted us from greater clarity in our thought and decisions.
The archetypal model of rationality was Mr. Spock from Star Trek, an alien being of higher intelligence, who was not hindered by emotions or subjective feeling in arriving at decisions. This was then the model to aspire to, if one wanted to make better decisions. Being highly rational and being very intelligent was one and the same thing. Better decisions, including those relating to business, came from putting our emotions firmly to ‘one side’.
Well this view or belief structure can now rightly take its place beside Ptolemy’s geocentric model of the universe, of the sun circling the earth.
In the new paradigm we now know from various scientific sources that emotions play a central and crucial role in our decision making. To be even more definitive, we know that without our emotional capacity we actually struggle to make decisions at all. This has been shown most dramatically through case studies of individuals who have suffered severe damage to their limbic system (emotional brain) caused by accidents or brain surgery. The brilliant neuroscientist and writer, Antonio Damasio, in one of his books ‘Descartes Error’, deals with real life clinical examples, particularly the case of Elliott. He was a young man of high IQ who had major surgery to remove a brain tumor that unfortunately damaged part of his frontal cortex, central to emotional functioning. Elliott could still discuss the pros and cons of various scenarios (his IQ remained intact) but he could no longer choose between them. Reason without emotion is ineffective.
Through the work of Antonio Damasio and others we know that our decisions rely not only on immediate facts but on our experience/memories of previous similar events and that these memories are both cognitive and emotional.
In his excellent 2009 book – ‘The Decisive Moment’ Jonah Lehrer explains that while the emotional brain is capable of astonishing wisdom, it is also vulnerable to certain innate flaws. These cause the horses in the human mind to run wild, so that people gamble on stocks, acquire investment property and run up excessive credit card bills etc. Lehrer makes the point that the relatively primitive reward system of our brains was not designed to cope with situations like the random oscillations of Wall Street. When the markets keep going up people/executives are led to make larger and larger wagers in the market. Our ‘greedy’ brains are convinced they solved whatever market we are investing in and we don’t think about the possibility of losses. We often hear that fateful statement on such occasions – ‘but it is different this time. ‘Not to invest/wager was to drown in regret, to bemoan all the profits that might have been earned. These neural signals emanate from a particular area of the brain rich in dopamine, the neurotransmitter chemical linked to the brain’s complex system of motivation and reward. In a sense we are biologically programmed to create and participate in market bubbles.
What are some of the things we can do to assist our decision making now that we better understand the mental process?
- Executives should recognize that the old dictum ‘Should I go with my gut feeling or be more analytical ?’ is not the complete question. Your intuition or ‘gut’ is only as good as the experience that informs it, – this must be brought into the equation and executives should hone their intuition by reflecting on their past experiences;
- Value others experience highly and ensure this is shared in a meaningful way through mentoring or other such practices. This not only assists the mentee but also assists the mentor in clarifying what is often implicit knowledge;
- Pay more attention to exceptional or odd cases ;
- Take a written note of the times when your decisions were wrong and refer back to this log on a regular bases:
- Rely not only on postmortem sessions to learn from past mistakes but hold pre-mortem sessions to avoid future mistakes.
