The Key to Effective Decision-making (feat. Cheryl Strauss Einhorn)

Hi, I'm Susan Drumm and welcome to the Enlightened Executive where your personal evolution sparks your leadership evolution. Each episode we feature groundbreaking techniques and strategies to help you get the edge in personal and leadership effectiveness. Today we're focusing on how we make complex decisions as leaders. And I'm excited to introduce Cheryl Strauss Einhorn. Cheryl is the creator of the Area Method, a decision making system to solve complex problems. And she's the author of an award winning book, Problem Solved A Powerful System for Making Complex Decisions with Confidence and conviction as well as Investing in financial A Decision Making System for Better Results which has been a number one new release on Amazon. Cheryl teaches as an adjunct professor at Columbia Business School and Cornell Tech and has won several journalism awards for her investigative stories about international politics, business and economics. So welcome Cheryl.

Thank you, Susan. So glad to be here with you.

So you've recently had an HBR article, Harvard Business Review and in it you outline 11 mints for decision making. And I happened to notice that the first three, which were I like to be efficient as a myth of decision making, I'm too busy to do the research solving this problem in the moment. They all relate to wanting to take shortcuts in decision making. And I'm curious as to why these myths in decision making were the first three that you identified.

Well, all of the myths that I talk about, and as you mentioned there are 11 of them, I think that they stem from a series of unhelpful behaviors that we've developed that in part mimic our hey Siri technology culture. We have developed, I think, a false equation between speed and efficacy. We tend to think that our problems should be the kind of things where we type it into Google and all of a sudden it's spit back in answer to us. But truly in life, the only thing that we ever have control over are our decisions. And so they deserve time and attention, especially for high stakes or complex decisions.

Yeah, so it sounds like our harried way of life in this modern age really impacts our ability to make decisions. And so is the gist of those three to really slow down. And I'm assuming you have plenty of techniques to help us do that in the decision making.

Yeah, so all of the myths basically are underpinned by three things, which is first, that as busy people we don't have to spend time investing in our decisions. Second, that we're rational human beings. The truth is now we all know that we're filled with these heuristics, the cognitive biases and, and these well worn Pathways that are based on our experience. And the third is that we tend to think that our decisions are ours alone. But the truth is, is that we operate in community. We are always part of an ecosystem. And so that's what's really underpins all of them. In order to thwart the mess, we do need first to have the knowledge of what it is that we think these unhelpful behaviors are. So the first thing is the knowledge of what's actually happening to us, and then from there, can build the awareness. But then the third thing that we need is, so what. What do we do with that awareness?

Right.

Telling us to be more aware or be mindful, that is not really a strategy. It's an entry point. And I think most of us know that. And so what I recommend to people is a mnemonic that is something that is vivid and that therefore, can help to trigger us that we want to be slowing down. And for that, I call it the cheetah pause. The reason why I call it that is that the cheetah's prodigious hunting skill is not that she accelerates like a race car. It's actually that she decelerates up to nine miles an hour in a single stride. And the reason why that's more important than the acceleration is being able to suddenly slow down. That builds agility, flexibility, and maneuverability. And those are all the things that we need for quality decision making. And then that strategic stop, those cheetah pauses allows us to answer some questions about what we're doing. If we rely on this myth, if we follow this particular behavior pattern, do we have any evidence that this behavior pattern has worked out for us in the past? Do we have any evidence that this behavior pattern is actually responsive to this moment as opposed to what. What we've done before? How does this move us towards our life goals? Could I collect other information to support or to thwart the direction that I'm going in? And who else's perspectives would I benefit from being able to learn more about so that I actually solve the problem holistically?

Got it. So you're saying, I love the use of a cheetah, and you're saying to act like a cheetah, to decelerate quickly, to pause and take some time to answer important questions as you're trying to solve a complex decision will ultimately make your decision better. That's the gist.

Because we tend to operate through this dirty windshield of bias. We think we're seeing clearly, but we are a product of our environment. We never see the world as it is. We always see it as we are. I think for leaders, really recognizing that we all need a way to pry open this cognitive space to allow for new information and new insight is going to help us to not only strengthen our relationships, but to have a better way to get other people to buy in and to solve a problem in a way that can be executed effectively.

Well, that brings up another myth that you mentioned, confirmation bias, right? So data that can, we tend to notice data that confirms an opinion we already have. How do you think social media has influenced this confirmation bias and what can we do about it?

Well, I think what has tended to happen over time is that we tend to read information that we think is of good quality and that is subjective to some extent because we partly tend to think that it's quality because it agrees with whatever our worldview is. And so the idea of confirmation bias, and I just want to find research that is going to let me know that I'm on the right path. I think this is something that is so easy for all of us to get into a trap of and to remind ourselves that disconfirming information is not just as important, it's more important. You can have many reasons why a hypothesis that you favor looks like it is going to work out. But if you have one insurmountable hurdle, it's going to fail. So in both of my books, Problem solved and in investing in financial research, one of the steps of my area method, which is an acronym for the steps that somebody goes through in the decision making process, is to actually conduct a series of creative exercises when you're in your analysis phase that will help you to list those assumptions against evidence. And there's one exercise in particular that I think is very successful at forwarding confirmation bias. It's a mouthful of a name, and I learned it from a declassified CIA manual and it's called the competing alternative hypothesis exercise. And this is this idea that you create a simple matrix and on one axis you could have all your pieces of evidence, and on top across, you might have all the different hypotheses that you are considering. And so you're actually looking at the diagnosticity of each piece of evidence. And oftentimes the piece that we think is the most important is often a piece that may have very little diagnosticity. Just to put that in context, when we get sick, often we run a fever. So a fever is a very important indicator that something is wrong, but it's got very little diagnosticity because it's not going to give us any indication of what actually is going on inside of us.

So when you say diagnosticity, you mean ability to make a causality between the symptom you're having and the reason for it. Yeah, that's right.

Clearly a fever has correlation, but it says nothing about causation. And so being able to disaggregate those two things I think is very important as a leader.

Yes, yes. And so even I'm curious to know what types of decisions are best for something like the area method, which you outline in your book. And then maybe we can get into what does that, maybe walk us through the steps, but as an outline, like what is it whether or not I should have caffeine in my coffee or not. And I say that because there is so much competing evidence. If I am going to. If I believe coffee is good for you in confirmation bias, I can find tons of articles out there that coffee is great. If I believe that coffee is terrible for your gut, for your head, whatever it is. There are lots of. So how do I possibly make this decision? Is that the type of decision that the area method can help with or is it just something that's far more complex and let's say a decision that a leader might face whether to open a building a new plant or something.

The coffee is such a good example. For some people that could be a high stakes decision. My dad maybe has 10 cups of coffee a day, so maybe he should read more about it. For many of us we only have a couple cups, so it's not really such a big problem. Generally, I think something like the area method is meant for high stakes decisions. And I define high stakes as having three components. First, the outcome is unknown, as the future always is. The second though is you're dealing with something that's going to have a long term impact. And the third is that the price for getting it wrong is costless. That's when I think you really want to take time to invest in your decision making. For a lot of small decisions like what cereal to buy, we're happy to rely on our cognitive biases that tell us what we've done in the past and whether or not we've liked something. But I think we need a systematic way to control for and counter our biases when it comes to the big decisions. Because the biases then don't go away.

Yeah. And that's where it would make sense to do this. This is a costly. If you get it wrong, it's costly. So all the more important to slow down, use the cheetah pauses and actually apply a methodology versus just going with your gut the way you would pick out a box of cereal.

Yeah.

So tell me a little bit about the Area method then. What is the acronym stand for and how might leaders use that in decision making?

Area is an acronym for the steps of my perspective taking system which uniquely tries to control foreign counter cognitive biases in part by focusing on the incentives and motives of the other stakeholders involved in our problems. So that we can really think about how to expand our knowledge while improving our judgment. As an overview, think of it as the opposite of Google. Right? We were talking before. Normally when you're solving a problem you would type it into Google and then immediately you are in lots of other viewpoints without having any sense of whether or not they are aligned with your beliefs or your values or your goals. And you don't know their incentives and motives. So fundamentally what this is innovating for is and advocating for is that we change the way that we gather and collect information. And the reason why we want to do that is because we do now know that we all have these biases and heuristics. So area moves you in an organized way from one source of information to the next and from the least biased information to the most. So the steps stand for absolute information from up close on the target of your decision. So say you're thinking about taking a closer look at what the World bank does. You might start in the viewpoint of the World bank and you'd start right from their information. What kind of loans do they make? What size? How do you look at the success of the portfolio that they have and how do they describe their value proposition? And then R relative is the next phase of information. It is sources that would be somehow connected to the target. In this case, if again you're doing this investigation into the World bank, it would be groups that are funded by the bank, or watchdog groups or people who have worked with for the bank and so on. And so you're able to get these outside opinions about what has happened that you've looked at in that absolute phase. So you're constantly setting up a way that you vet and supplement your earlier information. Then the ease in area I call the twin engines of creativity. They're about upgrading your research beyond document based sources. Area. The first is exploration. It's identifying good prospects and asking them great questions. How do you get actionable information from interviews? And then area E exploitation is about turning our lens inward on ourselves as decision makers. To use those creative exercises that I mentioned a few minutes ago, where we look at our assumptions against our evidence and then the final analysis helps us to think about failure and to put back together all of that information so that we can make a decision.

Got it. So this is really expanding the window of your perception based on asking these important questions or thinking about how to gather additional data so that you make the best decision. Do you find, I would be curious to know if some resistance is, say, well, does this get you into analysis paralysis? What if I felt pretty confident in my decision and I go down this and now I'm more unsure? Is that good for me, a leader? What would you say to that?

That's not been the problem with the area method because, well, first of all, the books have what I call cheetah sheets. They're like the graphic organizers of the book. So throughout the books, at each point in the research, I'm giving you tips on either where to look for information and also giving you tips on what kind of analysis to do and suggesting how you try to sum up your work. So each piece is at the end of it, you are basically saying, so what? What did I learn? And you're writing a thesis statement so that you are actually chunk your learning and making your work work for you. All decision making is not linear. We would like it to be. It's actually circular. At times you do need to be driven back into the process to either get more information or conduct a different type of analysis. But by forcing yourself to actually chunk, you're learning and slow down to speed up your efficacy. You have these thesis statements so you can remember what you've done, why you did it. That prevents you from having an evolving hypothesis. And it also makes it so that you can move forward, I think, following a logical progression with greater confidence and conviction about what it is that you've done. Right. Right.

So how can this support leadership evolution? You know, we talk about here your personal evolution, sparking your leadership evolution. How does this help executives or entrepreneurs?

I think that there's really a couple different parts to the value proposition. The first is that other decision making systems don't build in some of these strategic stops. They don't recognize timing as a fundamental issue. And it should be an issue for all of us. We are all bound. The second thing is that it actively gives you a feedback loop and I don't think that the other systems do that. Third is other decision making systems say to you, go ahead, do your research, as if it's a single step but most know that it's this umbrella term for a whole series of tricky steps that we need to thoughtfully and carefully navigate. So the AREA method breaks it down step by step and it follows a logical progression to basically explain what is a comprehensive due diligence process. What does quality decision making look like in a research process? And then there's no other system that controls for encounters cognitive biases. So AREA gives you all these things and in addition it creates this beautiful audit trail, as I was mentioning before, of the work and the thinking. And so by moving through decision making fundamentally on a collaborative, collaborative backbone, you are actively including others and therefore you are building trust and you are strengthening relationships as you solve problems so that you can get that critical buy in so that then you are able to have a decision that has a much better chance to succeed.

Yeah, I like fundamentally in your model there are a couple things that I think are important for enlightened leaders or those on the path of enlightenment and why it fits in so well and I wanted to bring you on is one, it's as you just mentioned, it broadens the impact of your decisions to all stakeholders. Right. So you're not making decision in a vacuum. There are other people that you're influencing for you to take the time to think about those other stakeholders. The second is the awareness that you have cognitive biases and how they are influencing you and shifting that what you think you know may not be the whole story. So how can you supplement your research and be able to do that? And then you mentioned the third one around building trust to actually have interviews and conversations and build relationship to get more information rather than just relying on your Google search and reading the web and how important that is to involve. So each of these I think are really important fundamental mindset shifts and process steps that are included in the AREA method. So I was glad to hear and see that. And that's what I also think it makes unique because I haven't seen they've just been much more technical and not really taking into account how the brain operates and how perception works.

I really think that behavioral influences in how we make decisions is been an emerging field. And I think that we need something that constantly reminds us that we see as we are, not as it is. And that's not necessarily a bad thing, right? I mean, biases have some upsides too and that they, you know, when we know that something works, we can rely on them to help us move quickly or to allow us to drive to the supermarket while we're also on the phone, these are valuable things. But when we're making high stakes decisions and when we're trying to build trust and community at our companies and our organizations, we really need a way to lead by example.

That is another part of it is, yes, you're considering the stakeholders, but once you make your decision, there is additional components around how you're communicating that decision and building empathy around those that are impacted, perhaps in a negative way to that decision. Do you cover any of that aspect in your book or your work?

So my new book that I've been working on is actually on the fact that I've identified that there are five different approaches to complex problem solving and that if you can identify how you tend to approach problem solving, it's not proscriptive, it's going to tell you what you've tended to do, but then you can understand the strengths of deciding that way. And also what I call the potential pitfalls, which are the key cognitive biases associated by, with each of the decision archetypes. And then you can think about how to work better with others. And I think a lot of execution is what you're talking about in terms of communicating your results. How is it that we're developing a shared lexicon, understanding our, what I call situationality, which is the context that we're operating in, and then be able to convey this to our community. And so I think that the new work will really speak to some of this because the previous two books are about how do you make that decision and then how do you also set up for yourself signs where the decision might be getting off track to let you know it's time to change, or what you've identified as the criteria by which you can begin to evaluate. How did you do in the decision making, which I think is really important. Right before this, I gave a talk to the Certified Financial Analyst Society based on thinking about decision making and value investing. And one of the things that I thought was very interesting was how many people talked about how they judge their decision making based on the outcome. Yes, that's really hard. Right? None of us can predict the future. If we could, we probably would be doing something different. So I think what we can do is we can hold ourselves accountable for the decision making. Was it a quality process? Did we have good luck or bad luck? And by building a book of ourselves as decision makers, we can constantly update and iterate so that we learn from the past, so that we can do better in the future.

Got it. So focus on the process, not as much on the outcome because there is some element of good luck or bad luck in that process. You're just trying to do your best.

To set yourself up for the best.

Possible decision given the environment. Right.

Actually, I think that what you're getting at is, and I've written about this and I have another article on HBR that's on this topic is delineating between uncertainty and ambiguity. Right. So there are going to be things that are ambiguous, those you can research and you can triangulate, but those things that are truly uncertain, you're never going to make all that go away. So if you hold yourself accountable for just the outcome, that's a very critical.

Way to be right. Because then you're infusing that uncertainty piece. Got it. So what would you what do skeptics usually say to you about this method or the work and how do you address it?

Well, when you read Problem Solved and Investing in Financial Research, you'll see that what I go through in the book is an end to end system for complex problem solving. There's a lot of steps in there and the truth is, is that a skeptic would say, do I have to do them all? And my response to that is, remember the Cheat app? You want to be agile and flexible. All of us are resource bound and there are going to be times where we know in advance. I'm thinking about buy a home or I'm thinking about expanding my company for those kind of things. You might have the time to really be able to sit down and say I want to do a big process here. But for many of us, those big decisions come out of the blue and we need to decide yes, then you're not looking at all the steps. It's not going to be practical. And so I think of developing the skills related to complex problem solving, like taking a vitamin. You don't take a vitamin because you think that you're necessarily going to need it tomorrow or the next day, but you're continually taking it so that you've got a support system. You're giving yourself some backup. Developing the skills for complex problem solving and reading a book like Problem Solve or Investing in Financial Research is for you to understand what what are the possibilities in the different parts of decision making where you can look for new information or you can conduct an analysis and then you should make it your own.

Yes. And so given the time that you have, use what works for you or more specifically use where you tend to have greater blind spots or biases like really pay attention to those areas and make sure that your decision is more robust given the time that you have. In fact, as I read through the book I was looking for, where are places that I have bias and how can I incorporate this particular step, which I wouldn't naturally do, but I could do. So I think it's super helpful for leaders and I really appreciate you in integrating the leadership components that I think are so important. Thank you. So where can people learn more?

So you can visit my website, it's areamethod.com a r e a method.com and you can read about my articles and my work there. And I also have a TED talk that is called how do you know if your inner voice is a liar? Which is also fundamentally about cognitive biases and about the area method. So I hope that you all check out the website, reach out to me and learn more about my books and my software and tools and workshops and ways that I can help people to have greater confidence and greater conviction in their decisions.

Yes, absolutely. So if you were to leave our listeners with one thing they could do, one actionable step they could take to improve their decision making, what would that be?

I think the best one is simple and basic, but therefore so difficult to exercise. And that is put that extra beat, that deliberate disruption before you make a move. Before you act next or say something, ask yourself if you can take one extra breath to sort of say, am I present in this moment and am I showing up to listen for the other people who are involved?

Fantastic. Thank you so much, Cheryl.

Thank you. Thank you.

If you like this episode, you're not going to want to miss my interview with Shep Hyken, who's mastered the art of putting employees before anyone else to improve customer retention. Hope you enjoyed today's episode. And I'd like to point you to the next important step. Hit the subscribe button and the bell to get notified when we release new content. I'll see you on the next episode of the Enlightened Executive.