The most expensive decisions I have studied were not made by fools. They were made by intelligent, experienced executives, which should trouble you, because it means intelligence and experience are not the protection we assume.
The bets go bad in predictable ways. Decision science has mapped the patterns for decades.
The sunk cost escalation. Having invested, we invest more to avoid admitting the first investment failed. The project everyone privately doubts gets a second phase because ending it would make the loss real. Losses loom larger than gains, so we gamble to avoid them, precisely when we should fold.
The reference point trap. Outcomes get judged against arbitrary anchors, last year, the announced target, a rival’s number, rather than against actual alternatives. Executives will take real risks to close the gap to an anchor that never deserved its authority.
The confidence transfer. Success in one domain silently converts into confidence in all domains. The executive who built a brilliant operations record assumes the instincts transfer to acquisitions, or technology, or new markets. Sometimes they do. The base rates say usually not.
The unanimous room. As I have written elsewhere, agreement among people who share history measures cohesion, not correctness. The bets that sink organizations are rarely the argued ones.
The defenses are structural, not personal, because the biases are structural too. Premortems that make imagining failure safe. Decision criteria and kill triggers written before commitment, when judgment is still cool. Independent review from someone with nothing at stake in the room. Tracking decisions against outcomes so the organization learns its own patterns.
Smart is not the safeguard. Process is the safeguard. The smartest executives are the ones who know it.
Mel Meier, DBA is an applied social scientist and the founder of iB Consulting USA, a woman owned, WOSB certified advisory firm. She serves boards, associations, and executive teams through board advisory, organizational diagnostics, speaking engagements in the United States and internationally, and organizational assessments.
