Nix Overconfidence In Decision-Making

Smart people can make dumb decisions.

That's a lesson Jim Nightingale learned early in his career, when he noted that otherwise intelligent managers make bad mistakes. His interest led the Chicago-based consultant to write the new book, "Think Smart, Act Smart."

"There are certain areas of decision-making where being smart can be a detriment against you," Nightingale said.

Knowledgeable, successful people are particularly prone to make what he calls "overconfidence errors," or decisions based on an inflated sense of one's perceived rightness. A stellar track record of wise judgments doesn't ensure that you'll continue your winning streak.

Like everyone else, intelligent people are products of their experience. If they attribute their accomplishments to thinking or acting a certain way, they may struggle to change their approach as circumstances dictate.

"If you think, 'This is the way I know it has worked in the past,' it can be difficult to abandon that," Nightingale said. Refusing to alter your perception or sample new strategies can undermine your decision-making.

For Nightingale, faulty decisions often flow from one of four types of flawed thinking:

1. Wishful thinking. Instead of confronting reality, some people see the world the way they want it to be. Brimming with overconfidence, they may leap to conclusions without examining the facts.

While leaders need a healthy amount of confidence to make tough decisions, too much of it wreaks havoc on sound analysis. A string of smart moves can fool you into assuming that you can control outcomes.

2. Mythical thinking. If you're unable to change your mind or adjust your perspective amid the latest events, facts and trends, you can lapse into lazy decision-making. This trap boils down to, "This is what I've been doing so I'll keep doing it," Nightingale says.

3. Tribal thinking. We all like to think we don't blindly follow the herd. But Nightingale warns that social factors exert a subtle but important influence on our actions.

"When facing a difficult decision, there's a tendency to think, 'Everyone's doing it' which leads to crowd following," he said.

4. Royal thinking. Imperious leaders who stymie the free exchange of ideas can wind up making misguided decisions without all the necessary information. Domineering executives who shut down debate among teams can blunder by refusing to hear all sides, Nightingale says.

Avoid these traps by following a consistent process when making key decisions. Identify the data you need, your time frame and whom you'll ask to give input before finalizing your decision.

"Involve the right partners such as a disinterested expert or someone to play devil's advocate," Nightingale said.

By sticking to the same process when weighing every big decision, you develop the discipline to avoid impulsive moves. You'll also guard against sloppy thinking habits that can steer you into trouble.