How Group Decisions End Up Wrong-Footed
Jason Zweig Analyzes Group Think & Investment Committees.
Article Introduction (Via WSJ)
Idiots, liars and thieves have torched billions of dollars in this financial crisis. But it is a safe bet that at least as many billions were lost by smart people trying to do good, honest work on behalf of others — usually as part of a committee.
Examples are so abundant it isn’t hard to trip over them:
Compensation committees on Wall Street awarded multimillion-dollar bonuses to the very people who ended up nearly eviscerating the global financial system. The investment committees at leading universities embraced hedge funds, private equity and real estate so unquestioningly that many ended up with 75% or more of their endowment in these illiquid assets.
Investment committees at charities fell as badly under Bernard Madoff’s spell as lone investors did, often losing millions of dollars at a pop. Boards of directors at mutual funds looked the other way as managers loaded up on toxic mortgage securities.
How To Avoid Group Think (Notes From Article Via WSJ)
1. Measure What Makes Success
2. Neuter The Numbers
3. Reframe Questions
4. Use The 5 Whys
5. Define The Default Position