Outcome Bias

Impact on LEADERSHIP AND BUSINESS

Treasure:

In leadership and business, the “treasure” of outcome bias is that leaders who achieve good outcomes, will be more optimistic, motivated, and confident in their decision-making based on achieving a positive outcome. They will be more likely to take risks, which can lead to positive future outcomes.

Even when outcomes are not positive, outcome bias can positively reinforce learning from results.


Risk:

However, the “risk” of the outcome bias is that leaders may become overly focused on the outcome, rather than on the process of making the decision. They may ignore important information and fail to consider all the alternatives, resulting in a poor decision process and suboptimal decision-making.

Undervaluing risk management is another risk associated with outcome bias. If risky decisions lead to positive outcomes, the importance of risk assessment and risk management can be undervalued.

This bias also leads to unfair assessments of decisions, because good outcomes can mask poor decision-making, and bad outcomes can wrongly cast a negative shadow on a good decision and decision process.

Finally, negative outcomes will tend to demotivate, even if the decision process was sound and well-reasoned.

To identify outcome bias in a leader, simply observe their decision making process. A leader who focuses too much on the outcome of a decision may neglect important information or fail to consider all the alternatives.

When a leader tends to overlook or ignore negative consequences or potential downsides, outcome bias may be a cause.


KNOW YOUR KNOTS - Learn to recognize when Outcome Bias is taking the lead.

Ask yourself:

Do I judge decisions solely by their outcomes?

Am I quick to label decisions as good or bad after the fact?

How do I react to negative outcomes from decisions that were well-thought out?

Am I learning the right lessons from past successes and failures?

Do I give enough credit to the process and context of decision-making?

Do I recognize when a good outcome occurred due to luck or external factors?


STRATEGIES to manage this bias: Pause – Perspective – Practice – Progress

Pause:
Reflect on past decisions and consider how you assessed their quality. Did you consider the decision-making process or just the result?

Think about whether you tend to view such decisions as failures or as valuable learning experiences.

Assess if you adequately consider the circumstances and the information available at the time of the decision.

Consider if you are extracting useful insights about the decision-making process or just focusing on the outcomes.

Reflect on whether you differentiate between skill and luck in evaluating outcomes.


Perspective:
Ensure that team members share their different viewpoints on decisions to learn various aspect that influence outcomes.


Practice:
Focus on evaluating the decision-making process, not just the outcome. Hold sessions where past decisions are reviewed not just for their outcomes but for the quality of the decision-making process. Train teams to evaluate decisions based on the information and rationale available at the time, not just the outcomes.

Learn from past successes. Positive outcomes can reinforce successful strategies or practices, providing guidance in future scenarios.

Risk awareness requires a regular assessment and discussion about risks involved in decisions, acknowledging that a good outcome doesn’t always mean the risk was justified.

Leverage decision logs to document the context, information, and reasoning behind important decisions. This can help in later evaluations.

Integrate scenario analysis as part of a decision process and consider multiple potential outcomes and their probabilities when making decisions.


Progress:
Foster an environment where learning from both successes and failures is valued – understanding the role of external factors and luck.

Encourage a culture of evaluating decisions based on the quality of the decision-making process rather than solely on outcomes, highlighting the importance of considering the information and reasoning available at the time of the decision.

Provide training and awareness programs on cognitive biases, including outcome bias to help the organization acknowledge the role of luck and uncertainty in outcomes – and to facilitate more rational and informed decisions across the organization.