A VC outlines common reasons for shoddy thinking beyond such classics as stupidity, laziness, and arrogance.
No one gets up in the morning and says, “Today I am going to make a ton of bad decisions.” All of us strive to avoid dumb calls and unforced errors. We police ourselves for stupidity, laziness, and arrogance. If we’re smart, we even keep an eye out for the many biases that afflict the human brain.
Yet we still all sometimes make bad decisions. Why?
There may be as many answers to that question as there are human frailties, but according to one VC, some causes of dumb decisions pop up more frequently than others. On the blog of his firm recently, Morgan Housel outlined some of the most common ways he sees smart people go wrong in their thinking, beyond the obvious offenders like greed and fear of failure.
The long post is well worth a read in full but here are a handful of ideas to get you started, along with a sprinkling of research and examples to back up Housel’s claims.
A quick look at America’s polarized politics should confirm that people often make dumb decisions because of the emotional charge they get out of belonging to a particular tribe. But the problem isn’t confined to politics. “Tribes are everywhere — countries, states, parties, companies, industries, departments, investment styles, economic philosophies, religions, families, schools, majors, credentials,” Housel points out.
We love the feeling of identity and support we get from belonging to a tribe, but Housel cautions that “tribes have their own rules, beliefs, and ideas. Some of them are terrible.” Members of the tribe often go along with these idiocies anyway to avoid threatening their identity.
2. The wrong incentives
We think our morals are internal, that we’d hold to our principles no matter the external circumstances. A boatload of research shows that’s not true.
“Incentives can tempt good people to push the boundaries farther than they’d ever imagine,” Housel writes. “It’s hard to know what you’ll consider doing until someone dangles a huge reward in your face, and underestimating how adjustable the boundaries can become when rewards rise is a leading cause of terrible decisions.”
Originally published on inc.com October 16, 2020