Were We Lucky or Smart?

Eric J. McNulty, Director of research at the National Preparedness Leadership Initiative, has written a highly useful blog post for Strategy+Business.   He examines outcome bias and how to overcome it.  Outcome bias, put simply, is the tendency to evaluate a decision (or set of decisions) simply based on the result.  In other words, if the outcome is positive, people assume that good decisions were made, and that an effective decision-making process was employed.  If the results are less than desirable, people presume that  the parties involved made faulty decisions and engaged in a flawed decision process.    Of course, that need not be the case.  We sometimes achieve great results despite some poor choices and a flawed process.  Similarly, we sometimes experience poor outcomes despite having made sound decisions.  How do we overcome outcome bias?  McNulty has a simple question that should be considered when great results are achieved:  Were we smart and capable or were we simply lucky?  By asking about the role of luck, we get people to consider the role of external and/or uncontrollable factors that may have contributed to our success.  It causes us to look beyond ourselves and to look beyond the simple explanation that our wonderful capabilities led to success. 

The Outcome Bias

Andrew O’Connell's brief blog post on HBR this week highlights research by three BYU professors - Lars Lefgren, Brennan Platt, and Joseph Price.   These three economists have written about the outcome bias, an important cognitive bias that impairs our ability to make good decisions.   According to Jonathan Baron and John Hershey, the outcome bias refers to the tendency of people to "take outcomes into account in a way that is irrelevant to the true quality of the decision."   In other words, you should not judge the quality of a decision simply based on an evaluation of the result, yet people do.  You should examine whether a choice was the best possible course of action given the information available at the time, and given the uncertainty in the situation.  Yet, we don't look back at how the decision was made in many cases.  We simply judge the result.  

Professors Lefgren, Platt, and Price explore the outcome bias by looking at the decision-making processes of professional basketball coaches.  These scholars report, "We find they [basketball coaches] are more likely to revise their strategy after a loss than a win—even for narrow losses, which are uninformative about team effectiveness. This increased strategy revision following a loss occurs even when a loss was expected and even when failure is due to factors beyond the team's control."   

Of course, the outcome bias works the other way as well.  How many times do we conclude that we made a good decision simply because a positive result was achieved?   Perhaps the positive outcome occurred despite the fact that made a poor choice.  Perhaps luck played a role.  We tend to downplay those possibilities, and we attribute the good result to our wise choice.  As a Navy Seal once told me, "The minute we forget that luck may have played a role in our most recent success is the minute when we enhance our risk of dying on the next mission."