Emotions and past experience have a large influence on executive decision making, according to Tuck School of Business professor Sydney Finkelstein. In his new book, "Think Again: Why Good Leaders Make Bad Decisions and How to Keep it From Happening to You," Finkelstein and co-authors Jo Whitehead and Andrew Campbell, both of the U.K.-based Ashridge Strategic Management Centre, analyze choices that high-profile leaders said they regretted in hindsight in order to identify key aspects of the decision-making process.
"The idea for the book was an outgrowth of earlier work I did on why leaders fail and why corporate disasters occur," Finkelstein said. "It led me to focus on individual decision making, because that's really what people have been interested in lately."
The book, published by Harvard Business Press on Feb. 3, focuses on interviews with officials in politics, business and the military, rather than on data analysis. The interviewed officials recounted their own past instances of poor professional judgment. Department of Homeland Security official Matthew Broderick discussed his failure to inform the White House of the humanitarian disaster that resulted from Hurricane Katrina, and former Lehman Brothers CEO Dick Fuld touched on his attempt to weather the economic crisis, which resulted in his firm's September 2008 declaration of bankruptcy.
By combining information from these interviews with recent research in psychology and neuroscience, Finkelstein and his co-authors defined two key practices in the decision-making process -- pattern recognition and emotional tagging.
Past experience and emotions always play a role when individuals examine current situations, Finkelstein said.
"These decisions are really not made in any kind of a textbook way," Finkelstein said. "It happens occasionally, but for the most part, people usually make very quick decisions in which their emotions play a huge role."
The authors also identified four "red-flag" conditions that can contribute to poor decisions: misleading experiences, misleading pre-judgments, inappropriate self-interests and inappropriate attachments.
"We saw dozens and dozens of these kinds of biases," he said. "It's very difficult to provide a really cohesive set of lessons, but we tried to look for commonalities across these biases to identify the real broad themes in decision making."
Whitehead said he was surprised by how easily the professionals he interviewed recalled decisions they considered regrettable.
"It wasn't a case where they had difficulty thinking of something," he said.
Finkelstein said he is confident that the conclusions he and his team drew in the book can be applied to other situations. After listening to Captain Chesley Sullenberger, the U.S. Airways pilot who successfully landed a plane in the Hudson River last month, recount his memories of the event during an interview on "60 Minutes," Finkelstein determined that Sullenberger's decision-making process followed the model described in the book.
"I was really taken aback by how he described the decisions he was making in real time," Finkelstein said. "He made only one decision, and he didn't consider five different things. It was a great illustration of what we talk about in the book, about how our brains process information."
Finkelstein said the book has generated some controversy among readers, especially in light of the current economic crisis.
"Not everybody likes to hear that a company they have stock in failed because of poor decision making by its leaders," he said.