Every day, we experience the consequences of smart people making stupid decisions. 

What causes intelligent people to make decisions that do not work and could never work or decisions that have unintended, negative consequences?

Arrogance: Far too many smart people pride themselves on their intelligence believing that whatever they do or decide must be correct because they are intelligent.  Further, smart people believe that their intelligence and success in one area means that they have intelligence and above average insight in another. 

Over-Confidence: Their over-confidence leads to their making predictions and then believing in and acting on these predictions without realizing how inaccurate we humans all are in making predictions.

Laziness: Smart people compound these errors by being too lazy to evaluate their decisions or predictions after the fact to see whether they were correct or not.

Information Bubble: Smart people, especially politicians, academics, and those in Hollywood, live in an information bubble where often only one type of view is represented.  This gives a distorted sense of reality.

Blind to Cognitive Biases:  We all have cognitive biases and make poor decisions when influenced by these biases, especially the confirmation bias (the tendency to accept information that confirms what we already believe and ignore information that goes against what we believe).  But smart people have the intelligence to be even better at justifying the strength and quality of their decisions, even when they are wrong.

“Even the smartest people tend to seek out evidence that confirms what they already think, rather than new information that would give them a more robust view of reality.”  Steven D. Levitt

“It is not that smart people aren’t capable of believing in cultish things; instead, it’s that smart people are better at defending beliefs they arrived at for non-smart reasons.”  Michael Shermer

Value Theory over Practical Experience: Being book smart is important; but only if mixed with practical knowledge and experience.  Philosophers and boosters of large government projects (that work in theory) are especially susceptible to this. 

“It doesn’t matter how beautiful your theory is, it doesn’t matter how smart you are. If it doesn’t agree with experiment, it’s wrong.” Richard Feynman

Or as my former boss, Jim Schack, used to say:

“What works in theory may not work in reality.  But what works in reality just may work in theory.”

Undervalue the Frontline: Smart people are often far from where the decision will be implemented, and the work will be done.  By undervaluing the frontline, decision-makers do not consider the capabilities of those on the frontline to understand and be able to implement decisions made from on high.  This is seen with complex government and corporate policies and procedures or with complex products or software. Further, decision-makers do not consider the motivations of the people implementing the decision or doing the work and their ability and incentive to do what is right for themselves.   As President Dwight Eisenhower sums up well:

“The further you are from the front line, the dumber you are.”

How to Overcome This Stupidity

Here are some recommendations we can use to avoid making stupid decisions.

Make decisions based on short-term reality and be skeptical of our ability to make accurate medium term to long term predictions.  Nearly all medium-term and long-term predictions (especially from pundits and supposed experts) will be wildly inaccurate.  We just need to focus on doing well what is right in front of us.

Evaluate our decision making to keep humble. 

During business school, I had no money; but for the two years, I managed a virtual group of stocks thinking that I would be good at managing stocks because (after all) I was a finance major at business school.  I was a terrible stock picker.  After graduation and as soon as I had some money, I invested in S&P 500 Index mutual funds and have been doing that ever since.

Get out of our information bubble.  We need to ensure that we are reading and listening to ideas that we disagree with.  This will ensure that we are not living in an information bubble.  When interacting with these ideas, we need to focus on their positive aspects to see if they give us some further insight.  Alas, this is more difficult and a whole lot less fun than shooting down opposing ideas.  But, we all need to do it.

Focus on the people doing the work and their commitment and motivations.  If we truly understand the people on the frontline and/or our customers and involve them in the decisions that affect them every single day, we will avoid the large corporate and policy mistakes we still laugh at: from General Motors’ attempt in the 1980’s to replace their workers with robots to New Coke to JC Penney’s failed move upscale by eliminating sales and discounts.

Stay humble and stick to what we know and are good at: 

Several years ago, I took a leadership development class.  Before the class, we took an Ability Battery of tests that measured all different intelligences: analytical reasoning, inductive reasoning, ability to work with numbers and designs, verbal aptitude, structural visualization….  I quickly realized that while I was good in several categories and above average in several others, I was distinctly below average and downright bad in other categories.  Spoiler alert, we all have the mix of skills and abilities – some great, many good, many below average, and some bad.  So, we all would do well to stick to what we know and are good at.

Don’t make big decisions alone: Get other people’s insights and advice, especially others that think and act independently from the way we do and that have different strengths, and that are willing to challenge our thinking.  As Satchel Paige said well:

“None of us is as smart as all of us.”