Hardcover | 336 pp. | PublicAffairs | 07/01/2014 | 1st Ed.
Left Brain, Right Stuff was written by Phil Rosenzweig, a professor at IMD (Institute of Management Development) in Lausanne, is a book that focuses on Decision-Making.
The core idea of this book is that the standard advice for decision-makers has been to be careful of common cognitive biases, and how to avoid them. A lot of the literature has been focusing on overconfidence, for example, as an issue in decision making. Rosenzweig argues, however, that not all decisions are influenced the same way by bias, and he distinguishes explicitly decisions taken on things we can influence. Most research on bias, he argues, has been focused primarily on decisions made in domains where we don’t have any control. But the reality, especially for leaders and managers, is that many if not most decisions are taken in areas where we do have some levels of control. This is why Rosenzweig argues that it is essential to consider both the left brain (analytic) and right brain (intuitive and judgment based) approaches in any consideration of Leadership and managerial behaviour.
Great decisions call for a capacity for considered and careful reasoning, and also a willingness to take outsize risks.Phil Rosenzweig, Left Brain, Right Stuff, page 17
What’s Wrong with Decision Making Science?
This book has two particular merits. First, it comes in at a point where behavioural economics research focused on biases, painted the human being as “irrational” and almost incapable of making sensible decisions. Rosenzweig analyses many different pieces of research, often going against the simplification of taking the results of a lab experiment and apply it to the entire realm of human decisions. Second, it focuses on the current wave of analytics development. A standard solution advocated by many is to use bias-free algorithms to improve decision making. Problem is there’s not yet a perfect tool to forecast the future, and there are many areas in which the human “gut feeling” still has a role to play.
In chapter two, Rosenzweig starts by analysing the biggest issue with behavioural studies applied to decision making. In most cases, the validity of the many lab experiments that have found out bias in the way people make decisions, don’t fully apply to situations in which the person has some level of control on the situation. The author also mentions the concept of “perceived control” as the critical element governing decision-making. With examples coming from sports and medicines, Rosenzweig shows that frequently Performance is a function of whether the decision-maker feels that he/she can influence outcomes because often the key to success is that up to a point, the perception of the ability to control outcomes helps make right decisions.
Chapter three focuses on the concept of Performance: the main takeaway is that Performance is rarely an “absolute” and what matters is “relative” Performance because, in most real-world settings, there is rarely a definition of absolute good Performance. What you have to focus on is to ensure that your organisation performs better than your competitors.
Understanding what level of Performance we have to achieve is the focus of chapter four. In some industries, you need to be the absolute best; in others, you might be able to settle to a “good enough” level. Rosenzweig uses the concept of payoffs to help understand this difference for every manager.
A few biases demystified
We’ve heard it over and over: people fail because they are overconfident. In chapter five, the author analyses how fast this concept has spread, and how much it is today “abused” by many to justify the failures of some. He provides a detailed analysis of how the idea of “overconfidence” formed, and establishes that in reality, we often are describing three separate elements:
- overprecision which can be defined as the overcertainty that our judgment is correct,
- overestimation which is the belief that we can perform at a level beyond what is warranted
- overplacement which is the belief that we can perform better than others.
It is difficult to find a manager that displays all three of these behaviours. The reality is that often managers do not show overplacement, and in fact, they also often underestimate how well they will perform. Attributing failures to overconfidence is, therefore usually the fruit of bias in itself, a shortcut that also seems to contain a value judgement in our ex-post analysis.
Chapter six analyses the base rate bias whereby we often do not estimate the probability of one event conditional on another correctly and leads us to often focus on the case at hand while overlooking the composition of the broader population. Rosenzweig here points out that being aware of this bias is very important, but at the same time, there are many situations in which the base rate is not known, or it is variable.
Chapter seven focuses on how we can make better decisions over time. Rosenzweig suggests an improvement method that consists of breaking down each decision in these components, and to focus on which action each part requires. This is where deliberate practice is vital, provided that the person can get immediate feedback on the action itself (Rosenzweig identifies other two criteria to make deliberate practice truly useful: the task needs to be short in duration, and the performance metric needs to be absolute, not relative). This chapter is exciting exactly as it pushes a strong argument on the concept of experience in the framework of decision making. As we have also seen in David Epstein’s Book Range, there’s often too much focus on practice as a way to achieve perfection, while there are other elements not be considered.
It’s about gaining expertise, which is not the same as simply amassing experience.Phil Rosenzweig, Left Brain, Right Stuff, page 123
The book now dives into a new section focusing on managerial decisions, i.e. decisions that impact not just one individual, but many people at the same time. Chapter eight focuses on the concept of Leadership and is very interesting as, also here, the author tries to demystify some thoughts that have become mainstream. The main one is Authenticity. Rosenzweig notes how much the concept of Authenticity has become mainstream as an attribute for Leadership, but he also notes that defining Authenticity also works mainly ex-post. He tries to take a fresh look at the concept, and suggest we should be looking at sincerity instead.
Authenticity generally means acting in accordance with our inner selves. We’re authentic when we express what we truly feel. Sincerity is about behaving in accordance with the demands of our role. We’re sincere when we meet our obligations and fulfill our responsibilities.Phil Rosenzweig, Left Brain, Right Stuff, page 155
The other trait that Rosenzweig debunks is Persistence. Here he traces a real bias that many leaders have: the idea that they need to be persistent in the way they address a course of action. But what the author notes are that what is valued is the perception by others, and successful leaders are good precisely at this—the reason being that top leaders in an organisation are tough to be evaluated.
It’s a paradox: as we go higher in an organization, decisions become more complex and take longer to produce results, making it more difficult to evaluate the leader. For the very highest positions of all, at which decisions often are the most consequential, evaluating those decisions can be the most difficult of all.Phil Rosenzweig, Left Brain, Right Stuff, page 158
Chapter nine addresses the usage of mathematical and forecasting models. As mentioned before, the typical suggestion to overcome biases has been to use more and more data. If it’s true that well-programmed algorithms can overcome biases and be effective, the author insists that this is only true in a situation where we cannot impact the outcome. The conclusion is that while models can be immensely useful in many cases, they provide no benefit when we have direct influence and where positive thinking can make the difference between success and failure.
Making Big Decisions
Chapter Ten and eleven are focused on two specific types of decisions that the author uses to support his theory. The first is related to participation in auctions. Here Rosenzweig tries to debunk the concept of “the winner’s curse”, looking at successful bids and how the reasoning went. By focusing on what we can control (for example costs) rather than what we cannot control (for example customer revenues), we can overcome the issue of winning a bid at too high costs.
The second instead looks at setting up new firms, and the perception that there is a too high rate of failure. A careful analysis of the data provides a different answer to the general opinion – most new ventures do not fail as they often close even when they have not failed but because the founders have decided that they want to do something else even though the ventures are still profitable. This outlines the fact that also for new companies, there is not always a clear path for success. Here Rosenzweig tries to get away from the traditional narrative that successful companies are the result of an unruly genius but instead looks at precise executions as the critical factor (besides having a valid business idea).
Left Brain, Right Stuff
In the concluding chapter, the author winds up his findings. In the real-world context of leading and managing organisations, while left-brain approaches such as modelling data are essential, the full story is that good managers also need to bring the “right stuff” to the decision.
Rosenzweig does not accuse behavioural science of being wrong. He points the finger to the simplification of applying the results of laboratory experiments applied to individuals too much more complex situations where more is at stake.
What’s missing is the recognition that strategic decisions are fundamentally different from most decisions made by many managers, policy makers or marketers. Strategic decisions don’t involve choices from a fixed set of options that cannot be altered, but allow us to influence outcomes.Phil Rosenzweig, Left Brain, Right Stuff, page 245
To make the right decisions and avoid biases, he argues that we need above all to develop the capacity to ask questions and go beyond first-order observations. He, therefore, suggests a list of questions we should always pose ourselves as part of the process:
- Are we making a decision about something we cannot control, or are we able to influence outcomes?
- Are we seeking an absolute level of Performance, or is performance relative?
- Are we making a decision that lends itself to rapid feedback, so we can make adjustments and improve a next effort?
- Are we making a decision as an individual or as a leader in a social setting?
- Are we clear what we mean by overconfidence?
- Have we given careful thought to base rates, whether of the larger population at a point in time or historical rates of past events?
- As for decision models, are we aware of their limits as well as strengths?
- When the best course of action remains uncertain, do we have a sense of on which side we should err?
Winning decisions call for a combination of skills as well as the ability to shift among them. We may need to act first as a psychologist, then as a tactician, next as a riverboat gambler, and perhaps once again as a psychologist. In the real world, where we have to respond to challenges as they arise, one skill or another is insufficient; versatility is crucial.Phil Rosenzweig, Left Brain, Right Stuff, page 251
Left Brain, Right Stuff is a very pleasurable reading, with lots of references to concrete cases and valid research (showing once more the need to focus on the scientific validation of management research truly). It’s a big and robust callout on the simplification that often come from findings linked to specific experiments or experiences. On one side, it calls for more attention to the complexity of decision making: human beings can apply all resources of their brain to be successful. On the other side, it gives a very pragmatic view on many aspects, avoiding overcomplications. Great reading for anybody interested in decision-making research, although the book itself is not a “how-to guide” on how to make decisions. This, unfortunately, will still need to rely on the manager’s analysis capability and “gut feeling”.
Did you read Left Brain, Right Stuff? Feel free to add your observations in the comments section below.