Cognitive biases

In our work with clients we focus a great deal on the perspective -- or point of view -- a leadership team has on the world in which they compete. The reason is that a faulty or outdated perspective can be troublesome if not deadly.

Now comes an independent report to the International Monetary Fund on why the organization failed to see the current world financial crisis approaching. It turns out that core findings blame a variety of analytical weaknesses, as you would expect. But among those analytical weaknesses was a cognitive bias -- groupthink, in other words -- which was founded on some mistaken assumptions.  The report states:

"Several cognitive biases seem to have played an important role. Groupthink refers to the tendency among homogeneous, cohesive groups to consider issues only within a certain paradigm and not challenge its basic premises (Janis, 1982). The prevailing view among IMF staff—a cohesive group of macroeconomists—was that market discipline and self-regulation would be sufficient to stave off serious problems in financial institutions. They also believed that crises were unlikely to happen in advanced economies, where “sophisticated” financial  markets could thrive safely with minimal regulation of a large and growing portion of the financial system."

Perspectives are based on assumptions and say more about an organization, a company or a brand than virtually anything else. As George Bernard Shaw pointed out: "What a man believes may be ascertained, not from his creed, but from the assumptions on which he habitually acts."