Nikki Matthews


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Who are you?

Have you noticed that your behaviour changes in different environments and different roles? I must confess when driving I find those pesky pedestrians quite annoying, and when I’m walking, of course, all traffic should stop for me!

The impact of conditioning

You may have heard (or read in Thinking, fast and slow by Daniel Kahneman) that whether a prisoner receives parole is somewhat dependent on the time of day. Kahneman cites a study where prisoners’ chances of parole reached about 65% after the judges had eaten a meal but diminished to almost zero by the time the next meal was due. The judges’ personal circumstances and their moods at the start of the day would also likely impact their decisions.

Humans are rather easy to influence! Fascinating, that such important decisions are so easily swayed. Perhaps having investment meetings after lunch could help avoid the hunger trap.

LCP clarity:

Group decision-making, vital to many investors, is fraught with bias and difficulty.

LCP insight:

Run an assessment of your board’s effectiveness at making group decisions, and arrange training on groupthink and behavioural biases impacting decision-making.

We would be happy to arrange this training with you; just get in touch.

Let’s lighten the mood

Your experiences affect how you see things and what you consider normal. In Japan, sumo wrestling is a popular sport, in Spain bullfighting continues to draw crowds, and in Roman times watching gladiators was a normal pastime.

Consider this illustration - who is right?

Both are. They're viewing the exact same thing from an entirely different viewpoint.

Everyone has their own perspective

Diversity in groups of decision-makers can help here. Why? Simply because, if you have the same background and experiences you might think about certain topics in a similar way or you might not be able to see flaws in a plan that are obvious to someone else with a different perspective to you.

I’m not only talking about race and gender here; cognitive diversity refers to different ways of thinking and finding solutions to problems. Having both high-level picture and very detailed analytical people included on an investment committee will likely lead to the best outcomes. The devil in the detail won’t be able to strike, nor will the hyperfocus on the details. For example, you could reduce the chances of missing those extra investment fees in the small print, and the risk of overanalysing which investment manager to select whilst not realising that the asset class is no longer in favour.

There is increasing evidence that diversity is a core building block of high-performing teams and better decisions.

The key questions that clients and investors often ask us is: how can we bring these behavioural insights to our committee or boardroom? What can we do to improve our decision-making?

Behaviour change is hard – but some approaches are proven to work

1. Pay close attention to roles

The roles we assume in group discussions often influence our opinions and contribution. You probably don’t even realise it, but you are likely slipping into a role. On investment boards, perhaps rotating the chair at meetings where key investment decisions are made could help ensure that the group is not led by one voice. Assigning a devil’s advocate to challenge key investment decisions could also be beneficial. The person with the greatest “power” could also voice their opinion last to ensure it does not impact other members' views.

In Milgram’s infamous experiment, people were asked to play the role of executioner and administer real volts to a person sitting in the electric chair every time they answered a question wrong. Before the experiment, almost no one thought they would administer the highest voltage, however, in the experiment the majority did, even when the person in the chair was screaming out in agony! (Luckily this was an actor, and the volts were fake). So, are people evil? No, but they can be under certain conditions. What was it in this case? They were told that it was their job or role to do so, i.e. they were following orders.

2. Stop, think: How are you coming across?

When you interact with people, you form unconscious beliefs about them. It typically takes seconds to form a view on someone and then you subconsciously look for information to confirm your beliefs. It may be useful to ponder what you really know about other people. It’s likely you don’t know all their history or current circumstances, it’s certain you do not know all their thoughts; therefore, you are making assumptions based on the limited information. There may even be things you are not aware of about yourself and it’s worth remembering your beliefs and interests have likely changed over the years. Feedback from others can help you have a more complete picture.

The Johari Window

3. Watch out for information asymmetry

Key investment decisions often boil down to a small, expert group advocating for their idea to persuade a sceptical and less-informed board or committee. This often isn’t the best way to structure decision-making as it may leave key information unsaid and hinges more on persuasion than rational logic. Consider whether you have a complete picture and whether you fully understand the subject or need further training. Asking an impartial party may sometimes help.

4. Keep a decision journal

After the event, it’s hard to go back and evaluate why you made certain decisions objectively i.e. what information did you have, what were you thinking at the time. Recording your decisions and your reasoning even in a very simple way keeps you honest. Have your decisions reviewed by another member of the investment board – their feedback might offer additional insights.

Key questions to ask yourself

  • How diverse is your decision-making body?
  • How often do you see real challenge and conflict when discussing decisions?
  • Are your decisions always a consensus?
  • Do you rank your decisions by importance and prioritise time accordingly?
  • Do you use a devil’s advocate?
  • Once decisions are taken, do you make a clear record of the reasons why?
"You probably don’t even realise it, but you are likely slipping into a role.​"

Nikki Matthews


Decision-making and investment outcomes

As Dan opened this edition of Vista by saying, investors are fundamentally decision-makers. The quality of your decisions is likely to determine the quality of your investment outcomes. But there’s good news! The wealth of behavioural and psychological research that has been done over recent decades is just starting to be used in the real world. There are almost certainly many ways to improve your group decision-making.

Get in touch if you would like to learn more about our 'groupthink' training or have a board effectiveness review.

Hear more on the topic from Laasya Shekaran on the Investment Uncut Podcast series

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