Successful managers make the wrong decisions

By | July 5, 2009

business-peopleAn economist studying the game of cricket has uncovered some important implications for corporate decision-makers. The study in the Economic Journal, examines decisions to bat first in 1,300 one-day international cricket matches. The key finding is teams who win the toss, then consistently and systematically fail to make the correct decision to bat or ball.

The author of the study, V Bhaskar (a self-confessed cricket nut), points out that poor decision making is difficult to understand. Elite cricketers spend their prime years learning how to play optimally; experience the same game scenarios frequently, so can learn from past mistakes; and face high-powered sporting and financial incentives to make decisions that lead to victory. According to Bhasker, the most powerful explanation for consistently poor decision-making is teams overweighting their own strengths (and weaknesses) and underweighting the strengths of their opponents.

Corporate decision-makers are no different to sports people. As junior managers, prime years are spent in MBA style education; time is also spent developing the art of management; as well as understanding the inner workings of the company and the industry. Competitive scenarios with rival companies are frequently repeated and lessons can be learnt. Finally, the financial incentives associated with corporate success and failure are nothing but high-powered. But if corporate decision-makers overweight their own strengths and underweight their rivals, then consistently incorrect decisions are likely.

The lessons from cricket and economics are simple. Work out your best decision, remind yourself that you are wrong and do the opposite.

About Damian Ward

Damian studied at the Manchester School of Management before beginning his academic career at Bradford, where he now teaches business economics to postgraduate MBA students. His research interests focus on the financial services sector and he has acted as an advisor to the UK Financial Services Authority. Damian is also the author of the leading textbook, Economics for Business.

Specialties: Business economics, Financial services, Efficiency of the UK mortgage market, Economic predictions