Tag Archives: Decision making

Ethnic Diversity Reduces “Groupthink,” Economic “Bubbles”

Despite progress in raising awareness about implicit bias and stereotypes, most people are less likely to trust recommendations and evaluations from people of different ethnic groups.

Sheen Levine

Sheen Levine

However, this bias may reduce the “herd mentality” that characterized recent price “bubbles” in U.S. housing and global financial markets, reported Columbia’s Sheen S. Levine, Evan P. Apfelbaum of MIT, Goethe University’s Mark Bernard, Texas A&M’s Valerie L. Bartelt, Edward J. Zajac of Northwestern, and University of Warwick’s David Stark.
They concluded that, “Diversity facilitates friction that enhances deliberation and upends conformity.”

Economic “bubbles” occur when the majority of traders, probably influenced by a type of “groupthink,” set inaccurate prices, leading to a mismatch between market prices and true asset values.

Irving Janis

Irving Janis

Groupthink can occur when three conditions interact, according to Yale’s Irving Janis:

  • Group Cohesiveness
    • Deindividuation,” when group cohesiveness becomes more important than individual dissenting views,
  • Group Structure
  • Context
    • Stressful external threats,
    • Recent failures,
    • Decision-making difficulties,
    • Moral dilemmas.
Scott E. Page

Scott E. Page

A mathematical model, developed by University of Michigan’s Scott E. Page and Lu Hong of Loyola University, demonstrated that a wider range of viewpoints leads to less groupthink and more balanced decisions.

Diverse groups ran into fewer “dead ends” in developing solutions than homogenous groups full of smart individuals, who tended to think similarly.

David A. Thomas

David A. Thomas

Likewise, additional experimental evidence by Georgetown’s David A Thomas and Robin J. Ely of Harvard confirmed that identity-diverse groups can outperform homogeneous groups.
Group errors depended on group member ability and member diversity, expressed in the formula:

Collective Accuracy = Average Accuracy + Diversity.

To test the impact of group diversity on market “bubbles,” Levine’s group constructed experimental markets in Singapore and Texas, USA, in which participants traded stocks to earn money.

Evan Apfelbaum

Evan Apfelbaum

More than 175 volunteers with backgrounds in business or finance were randomly-assigned to groups of six ethnically-homogeneous or ethnically- diverse participants.

Traders knew the ethnic composition of their groups, but they couldn’t communicate with each other.
In addition, their “trades” of dividend-paying stock during 10 rounds were anonymous.

Homogeneous groups set inflated selling prices, yet traders in those groups still bought the stock, resulting in increasing stock prices.

Mark Bernard

Mark Bernard

In contrast, traders in diverse groups refused inflated selling prices, so the stock price fell to approximately the price in an “ideal” market with “rational” traders.

When traders and other decision-makers come from similar ethnic, social, and attitudinal backgrounds, they tend to place undue confidence in others’ opinions and decisions, and tend not to subject them to rigorous analysis and scrutiny.

Valerie Bartelt

Valerie Bartelt

As a result, they may be more likely to accept prices and deals that deviate from actual underlying values.
Levine’s group concluded that “homogeneity…imbues people with false confidence in the judgment of coethnics, discouraging them from scrutinizing behavior.”

  • How do you mitigate “groupthink” in organizational decision-making?

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Career “Planning” = Career “Improvisation”

Kathleen Eisenhardt

Planning is most suited to relatively certain circumstances in which processes and decisions are typically linear, argued Stanford’s Kathleen Eisenhardt and Behnam Tabrizi in their analysis of global computer product innovation.

In contrast, frequently-changing or uncertain conditions with many iterative modifications require improvisation coupled with frequent testing.

Behnam Tabrizi

In “VUCA world,” described by the U.S. Army War College as volatile, uncertain, complex, ambiguous environments, current career “planning” occurs under rapidly-shifting conditions more appropriate for an agile strategy.
As a result, it is increasingly difficult to meaningfully respond to the frequently-asked interview question: “What are your career plans for the next five years?

Iterative exploration, rapid prototyping/experimentation, and testing characteristic of agile development and design thinking are more suited for rapid changes in economic, political, and technology changes that affect known career paths.

Alison Maitland

Alison Maitland

Possible Futures of Work are investigated in three thought-provoking books:

-*When have you found it more useful to “improvise” instead of “plan” your career?
-*What are the benefits and drawbacks of career “improvisation”?

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Unrealistic Optimism Drives Profitability

Overconfident decision-making in financial markets led to myriad negative consequences in the past decade, when companies underestimated business risks. 

Gilles Hilary

Gilles Hilary

In contrast to overconfidence, unrealistically optimistic judgments can result in increased profitability and market value, according to INSEAD’s Gilles Hilary and Benjamin Segal with Charles Hsu of Hong Kong University of Science & Technology.

Benjamin Segal

Benjamin Segal

Hilary, Hsu, and Segal demonstrated that over-optimism differs from overconfidence, and may result in larger growth projections.

Charles Hsu

Charles Hsu

The team drew on earlier work by University of Illinois’s Dirk Hackbarth that showed both overconfident, and overoptimistic managers chose higher debt levels and issued more new debt.
Hackbarth did not differentiate over-confident and over-optimistic investment behaviors, and reported that both tendencies reduce manager-shareholder conflict, which can increase firm value.

Dirk Hackbarth

Dirk Hackbarth

Static over-optimism” refers to an unrealistically positive view of the impact of one’s own actions on future outcomes.
In contrast, “dynamic overconfidence” refers to overvaluation of one’s skills and the accuracy of private information.
In addition, “dynamic overconfidence”  is associated with  underestimates of random events after several positive outcomes, according to Hackbarth.

Together, static over-optimism and dynamic overconfidence lead to “dynamic over-optimism” after successes.

Neil Weinstein

Neil Weinstein

The pervasiveness of this “rose-tinted glasses” view leading to over-optimistic assessments was demonstrated by Neil Weinstein of University of Arizona.
He investigated people’s beliefs about future positive and negative health events, discussed in a previous blog post.
Weinstein reported that people tend to believe negative events are less likely to happen to them than to others, whereas they expect they are more likely than other people to experience positive events.

Hilary’s team built on Hackbarth’s concepts by comparing North American companies’ quarterly earnings forecasts with analysts’ predictions and actual performance.
Then, they calculated the number of company-issued press releases containing optimistic language.

Optimistic performance forecasts were correlated with better-than-expected performance, suggesting that successes led to additional effort and positive expectations.

Hilary noted the potentiating effect of past successful performance, though it may lead to “burnout” after about four quarters due to the challenge of continually exceeding performance expectations.

The team noted that this cycle of over-optimism and burnout might be mitigated by instituting policies to moderate overestimates or underestimates future performance by rewarding executives who provide accurate forecasts.

Sheryl Winston Smith

Sheryl Winston Smith

Similarly, Temple’s Sheryl Winston Smith noted that optimistic entrepreneurs chose higher levels of debt financing relative to equity, facilitating patent-based and product-based innovation among nearly 5,000 US firms tracked by the Kauffman Firm Survey (KFS).

Young-Hoon Kim

Young-Hoon Kim

In contrast to these financial studies, Yonsei University’s Young-Hoon Kim, Nanyang Technical University’s Chi-yue Chiu and Zhimin Zou of University of Illinois reported mixed results for self-enhancing (overconfident) and self-effacing (pessimistic) biases on performance

Chiu Chi-Yue

Chiu Chi-Yue

Kim’s team posited that either over-optimistic or pessimistic biases lead to “self-handicapping” behavior, in which people perform under disadvantageous conditions that provide an explanation for any poor performance outcomes.

Although over-optimism may drive innovation and financial results, longer-term consequences may include performance “burnout,” reduced motivation, and lower performance.

-*How to you manage the impact of optimism bias and pessimism bias on judgments and performance?

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Knowing without Knowing – Implicit Learning in Action

Lyn Abramson

Lyn Abramson

Implicit learning – knowing without conscious awareness – has positive effects like accelerating foreign language learning and developing more secure computer authentication systems.
It also has negative consequences like prejudiced, biased decision-making.
All of these effects require sufficient sleep to enable memory consolidation of implicit learning.

Patricia Devine

Patricia Devine

When implicit learning leads to inaccurate beliefs about others, the result is often prejudiced behavior.
In contrast,  when biased perceptions are about one self, they can lead to feelings of depression, anxiety, or grandiosity, according to University of Wisconsin’s William T. L. Cox, Lyn Abramson and Patricia Devine with Steven Hollon of Vanderbilt.

Brian Nosek

Brian Nosek

A validated way to identify hidden beliefs about race, age, gender, weight, and more is the Implicit Association Test, developed by University of Virginia’s Brian Nosek, Mahzarin Banaji of Harvard and University of Washington’s Anthony Greenwald.

Mahzarin Banaji

Mahzarin Banaji

Banaji and Greenwald’s popular book provides numerous examples of frequently used thinking short cuts that lead to biased beliefs, decisions, judgments, and behaviors.

Anthony Greenwald

Anthony Greenwald

Similarly, most people make quick assessments of others based on appearance using habitual strategies that don’t account for perceptual limitations, noted journalist Joseph Hallinan, who summarized research on bias, misperceptions, and judgment errors.

Joseph Hallinan

Joseph Hallinan

He cited the impact of situational framing on decision making:  When a decision option is posed as a potential gain, most people are less inclined to take risky decisions.
However, they are more willing to take risks if the option is positioned as a possible loss.

Kara Morgan-Short

Kara Morgan-Short

Implicit language learning was demonstrated by “immersion” listening to multiple native speakers.
University of Illinois at Chicago’s Kara Morgan-Short teamed with Karsten Steinhauer of McGill University and Georgetown’s Cristina Sanz and Michael T. Ullman to conduct brain scans on these language learners, and found they showed “native-like language processing.”
By contrast, explicit grammar training did not improve language learning.

Karsten Steinhauer

Karsten Steinhauer

Likewise, implicit learning principles can increase computer security authentication, useful in high-security nuclear plants or military facilities that usually require the code-holder to be physically present.

Cristina Sanz

Cristina Sanz

Security can be compromised when attackers:

  • Steal the user’s hardware token,
  • Fake the user’s identify through biometrics,
  • Coerce the victim into revealing the secret key or password (“rubber hose cryptanalysis”).
Hristo Bojinov

Hristo Bojinov

Unconscious knowledge” is a highly secure approach to biometrics authentication, demonstrated by Stanford University’s Hristo Bojinov and Dan Boneh, collaborating with Daniel Sanchez and Paul Reber of Northwestern and SRI’s Patrick Lincoln.

They included implicit learning principles in a computer game to subliminally deliver a security password without the user’s conscious awareness of the password.

Paul Reber

Paul Reber

Players “intercepted” falling objects in one of six non-random positions on a computer game screen by pressing a key corresponding to the screen position.
The game repeated a hidden sequence of 30 successive positions more than 100 times during game play.

Players made fewer errors when they encountered this sequence on successive rounds, suggesting they implicitly learned the sequence.
Skill re-tests after two weeks demonstrated that players retained this learned skill, but they were unable to consciously reconstruct or recognize fragments of the planted code sequence.

Patrick Lincoln

Patrick Lincoln

Team Bojinov’s implicit learning game demonstrated a new method of highly secure authentication that resists “rubber hose cryptanalysis” by implicitly training the user to enact the password without conscious knowledge of the code.
Their new project analyzes the rate of forgetting implicitly learned passwords and optimal frequency of security authentication refresher sessions.

However, this innovation in security authentication is dependent on the authenticator having sufficient sleep to consolidate implicit learning in memory, found Innsbruck Medical University’s Stefan Fischer, I. Wilhelm, and J. Born, who examined sleep’s impact on implicit memory formation in children ages 7- 11 and 12 young adults between ages 20 and 30.

Fischer’s team measured serial reaction time task before and after eight implicit learning sessions concentrated on rules underlying grammatical and non-grammatical language structures.
Most volunteer responded quickly, demonstrating implicit rule understanding, even though they couldn’t explain why their performance improved.

When adult participants had an interval of sleep between training sessions, their response times were quicker.
In contrast, well-rested children did not show a similar performance improvement, suggesting that sleep actually interferes with implicit performance gains among children.

Implicit learning can boost performance, seemingly “effortlessly,” but requires sufficient sleep to consolidate longer term performance improvements.
These findings are another argument against sleep deprivation in “Crunch Time” all-night work marathons.

-*How do you capitalize on implicit learning to improve performance?

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Thinking in a Second Languages Reduces Decision Bias 

Boaz Keysar

Boaz Keysar

People who can think in a foreign language are more able to rationally analyze risk compared with evaluating risk in their native language, found University of Chicago’s Boaz Keysar, Sayuri L. Hayakawa, and Sun Gyu An.

Sayuri Hayakawa

Sayuri Hayakawa

When volunteers analyzed risks presented in their native language, they were risk-averse when considering potential gains and more risk- tolerant when considering possible losses.
However, they were did not show this risk assessment bias when they considered the same risks vs rewards in a foreign language.
Using a foreign language reduced loss aversion and increased acceptance of hypothetical and real bets with positive expected values.

Micheline Favreau

Micheline Favreau

This effect could occur because foreign languages are typically processed more slowly than in a native tongue, leading to more deliberate cognitive processing, argued Concordia University’s Micheline Favreau and Norman Segalowitz.

Norman Segalowitz

Norman Segalowitz

Foreign language processing generally requires greater cognition-intensive systematic, analytical effort, leading to increased emotional and cognitive distance than in a native tongue, suggested Princeton’s Daniel Kahneman in his distinction between Thinking Fast and Slow.

Stefano Puntoni

Stefano Puntoni

Even when people fully understand language nuances including colloquialisms, impolite words, terms of endearment and reproach, they react less emotionally in a foreign language, according to self-report and electrodermal measurements, found Erasmus University’s Stefano Puntoni, Bart de Langhe of University of Colorado, and Cornell’s Stijn M.J. van Osselaer.
As a result, more than half the participants preferred the riskier option presented in a foreign language instead of the native tongue.

Richard Thaler

Richard Thaler

This finding confirmed participants’ tendency toward myopic risk aversion, or greater sensitivity to losses when thinking and acting in their native languagedescribed by University of Chicago’s Richard Thaler, Amos Tversky of Stanford, Princeton’s Kahneman, and Alan Schwartz of University of Illinois.

Amos Tversky

Amos Tversky

Among more than 140 native Korean speakers and more than 100 English speakers in Paris, Keysar’s team confirmed the same pattern of enhanced deliberation and reduced framing effects in a foreign language in hypothetical low-loss, high-gain bets.
Just 57 percent of Korean-speaking participants accepted bets offered in Korean, contrasted with 67 percent when offered in English, suggesting heightened deliberation in a second language.

Daniel Kahneman

Daniel Kahneman

Likewise, more than 50 English-speaking volunteers who spoke Spanish as a second language received $15 in $1 bills, which could be kept or bet on a coin toss.
For every lost toss, participants lost $1.
However, if they won, they kept the $1 and earned another $1.50, a significant return on the chance bet.
When conducted in participants’ native English language, 54% accepted bets, whereas when presented in Spanish, 71% agreed to bet.

Alan Schwartz

Alan Schwartz

“They take more bets in a foreign language because they…are less affected by the typically exaggerated aversion to losses … People who routinely make decisions in a foreign language rather than their native tongue might be less biased in their savings, investment, and retirement decisions, as a result of reduced myopic loss aversion” wrote Keysar and colleagues.

-*How do you reduce “myopic risk aversion” in your native language?

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Debiasing Decisions: Combat Confirmation Bias, Overconfidence Bias

Philip Meißner

Philip Meißner

Cognitive and behavioral biases can contribute to “blind spots” in decision-making, leading to less effective outcomes.
To improve decision outcomes, University of Marburg ’s Philip Meißner, Torsten Wulf of HHL Leipzig Graduate School of Management and HEC’s Olivier Sibony proposed a systematic checklist to identify potential decision derailment based on bias, along with rapid remedies.

Torsten Wulf

Torsten Wulf

They argues that two types of bias contribute to most decisions that lead to undesirable results:

  • Confirmation bias, the unconscious tendency to believe new information that is consistent with existing beliefs and recent experiences, and to discount contradictory data,
  • Overconfidence bias, the out-of-awareness likelihood to overestimate one’s skills, insights, and judgment.
    This leads to increased risk-taking based on illusory sureness of the decision and ability to mitigate adverse outcomes.
Olivier Sibony

Olivier Sibony

Previously, Lovallo and Sibony articulated four related decision biases:

  • Pattern-recognition biases, countered by changing the “angle of vision,”
  • Action-oriented biases, mitigated by recognizing uncertainty,
  • Interest biases, minimized by explicitly highlighting these interests,
  • Social biases, reduced by depersonalizing debate.

Debiasing techniques such as checklists, can limit the negative effects of biases in decision-making by offering a disciplined, comprehensive analysis of downside risks and by systematically considering multiple viewpoints.

Atul Gawande

Atul Gawande

However, effectively implementing checklists requires consistent discipline, noted Harvard’s Atul Gawande, who cited examples of partial adherence leading to costly oversights and failures.

One approach, suggested by Princeton’s Daniel Kahneman and Gary Klein of McKinsey, is a “premortem.”
Decision makers imagine that the decision has failed and analyze sources and reasons for adverse outcomes, to more thoroughly assess points of failure and possible mitigation strategies.
Formal scenario-planning is another way to expose assumptions underlying a plan, as well as a competitor’s priorities and potential strategy.

Massimo Garbuio

Massimo Garbuio

Using a variety of debiasing techniques significantly increased the Return on Investment (ROI) in a study by University of Sydney’s Massimo Garbuio and Dan Lovallo and Olivier Sibony of HEC.
As a result, Michael Birshan, Ishaan Nangia, and Felix Wenger of McKinsey, argued that debiasing techniques should be embedded in formal organizational decision-making processes, particularly for high-impact, repetitive decisions.

Michael Birshan

Michael Birshan

Decision biases may be out of awareness, or unconscious, so it’s more effective to evaluate the process of developing a proposal, rather than focusing only on the content and merits of a proposal.

Decision-making safeguards can be built into standard analysis processes by including questions to expose:

  • Multiple data sources,
  • Diverse opinions and perspectives,
  • Downside risk,
  • Potential negative outcomes for company, industry, and broader ecosystem.
Daniel Kahneman

Daniel Kahneman

Proposals are considered ready for a decision only when multiple perspectives are available to mitigate confirmation bias and risk analysis is available to reduce overconfidence bias.
Responses to decision checklist questions can be quantified to indicate one of four action steps, according to Daniel Kahneman:

  • Decide, based on inclusion of robust safeguards against both confirmation bias and overconfidence bias,
  • Screening MatrixReach out, suggesting the need for gathering additional perspectives, opinions, and perspectives to prevent narrow assumptions to reduce confirmation bias.
    The Vanishing-Options Test, proposed by Stanford’s Chip Heath and Dan Heath of Duke University, can generate new ideas by imagining that none of the current proposals are available.
  • Stress-test, by conducting a pre-mortem or analysis by external devil’s advocate or provocateur to reduce overconfidence risk by.
  • Reconsider when both more perspectives and risk analysis are required to reduce both overconfidence bias and confirmation bias.
    This screening matrix helps reduce related decision-making biases:
  1. Self-interest Bias
    -To what extent is the proposal motivated by self-interest?
Ishaan Nangia

Ishaan Nangia

Recommendation
-Assess for over-optimism

  1. Affect Heuristic
    -How strong is the team’s emotional attachment to a specific proposal?
    -To what extent were risks and costs fully considered for both preferred and non-preferred options?

Recommendations
-Assess for strongly-preferred outcomes
-Reintroduce analysis of all options

  1. Groupthink
    -How many dissenting opinions were analyzed?
    -How adequately were all options explored?
    -Was dissent discouraged? 
Felix Wenger

Felix Wenger

Recommendations
-Encourage substantive disagreements as a valuable part of the decision process
-Solicit dissenting views from members of the recommending team, through private meetings

4. Saliency Bias
     -To what extent are decisions made based on a potentially incomparable, but memorable success?
     -What about the proposed analogy is comparable to the current situation?
     -What are relevant examples from less successful companies? What happened in those cases?

Decision Making QuestionsRecommendation
-Carefully scrutinize analogies’ similarity to the current decision situation
Solicit additional analogies using reference class forecasting:

.Select reference class,
.Assess distribution of outcomes,
.Intuitively estimate project’s position in distribution,
.Assess estimate’s reliability,
.Correct intuitive estimate.

  1. Confirmation Bias
    -What viable alternatives were included with the preferred recommendation?
    -At what stage in the decision analysis were alternatives discarded?
    -What efforts were undertaken to seek information to disconfirm the main assumptions and hypotheses?

Recommendation
-Request two additional alternatives to the main recommendation, including analysis of benefits and drawbacks
-Acknowledge unknowns, risks

  1. Availability Bias

    Max Bazerman

    Max Bazerman

    If you had more time to gather date, what information would you seek?, asked Harvard’s Max Bazerman
    -How can you access similar data now?

Recommendation
-Use checklists to ensure comprehensive analysis of data required for each decision type

  1. Anchoring Bias
    -What data sources are used to analyze decision?
    -Which data are estimates? By whom? If so, from which data were estimates extrapolated?
    -To what extent could there be:
  • Unsubstantiated numbers?
  • Extrapolation from non-equivalent previous situations?
  • Attraction to specific anchors?

Recommendations
-Present data from other sources, benchmarks, or models
-Request new analysis

8. Halo Effect
     -To what extent does the analysis team expect that a person, organization, or approach previously successful in one context will be equally effective in different situation?

Phil Rosenzweig

Phil Rosenzweig

Recommendations
-Question potentially inaccurate inferences
-Solicit additional comparable examples
-Question attributions of success and failure to leaders’ personalities instead of chance factors, advised IMD’s Phil Rosenzweig.

9. Sunk-Cost Fallacy, Endowment Effect
     -To what extent are recommenders attached to past decisions?

Recommendation
Disregard past expenditures when considering future costs and revenues

  1. Overconfidence, Planning Fallacy, Optimistic Biases, Competitor Neglect
    -To what extent is the comparison case unwarrantedly optimistic?

Recommendation
-Adopt an outside view by using relevant simulations or war games

  1. Disaster Neglect
    -To what extent is the worst case scenario realistically and sufficiently negative?
    -How was the worst case generated?
    -To what extent does the worst case consider competitors’ likely responses?
    -What other scenarios could occur?

Recommendation
-Conduct a premortem, suggested by Gary Klein of Applied Research Associates:  Imagine the worst case scenario occurred, then propose likely causes, mitigations   

  1. Loss Aversion
    -To what extent is the evaluation and decision team risk averse?

Recommendation
-Realign incentives to share responsibility for the risk or to reduce risk

  1. Planning Fallacy focuses only on the current case while ignoring similar projects’ history and statistical generalization from related cases.
    -To what extent does the analysis rely on “top-down, outside-view” comparisons to similar projects?
    -Did the evaluators use a “bottom-up, inside-view” to estimate time required for each step?

Recommendation
-Statistically analyze a broad range of similar cases to avoid over-estimates from “top-down, outside-view” approaches and underestimates from “bottom-up, inside-view”
-Differentiate accurate forecasts from ambitious targets

  1. Loss aversion
    -To what extent are evaluators more concerned with avoiding loss than achieving gains?
    – How concerned are evaluators with being held responsible for a failed project?
    -To what extent has the organization specified acceptable risk levels?

Recommendation
-Seek risk tolerance guidelines from organizational leaders.

Decision-making tools like checklists can significantly reduce unconscious biases, provided that they are consistently and systematically applied.

-*What strategies have you found most helpful in reducing biases in decision-making?

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Women Board Members + Strong Shareholder Protections = Higher Financial Performance

Kris Byron

Kris Byron

The relationship between women on corporate Boards of Directors and company financial outcomes is mixed, according to Syracuse University’s Kris Byron and Corinne Post of Lehigh University.

Corinne Post

Corinne Post

To clarify conflicting data, they conducted a meta-analysis of 140 existing studies and found that this relationship held in countries with stronger shareholder protections.

Companies with women on Boards and subject to significant shareholder protections reported higher accounting returns or firm profitability.

Richard Gentry

Richard Gentry

Accounting returns evaluate a firm’s efficiency in using assets to generate earnings and represent short-term financial performance, noted University of Mississippi’s Richard Gentry and Wei Shen of Arizona State University.

Wei Shen

Wei Shen

Another financial performance measure in Byron and Post’s meta-analysis was market performance, defined by University of Chicago’s Richard H. Thaler, as marketplace behavior that reflects expectations of a firm’s long-term value.

Richard Thaler

Richard Thaler

Women on Boards of Directors provide “diversity of thought and experience” and may tolerate less financial risk.
As a result, female members typically made stronger efforts to monitor the firms and to ensure strategy execution, according to Byron and Post.

Kathleen Eisenhardt

Kathleen Eisenhardt

To interpret their findings, the team considered Agency Theory, drawn from work by Stanford’s Kathleen Eisenhardt, suggesting Boards of Directors are “information systems” used by key stakeholders to verify organizational behavior.

Amy Hillman

Amy Hillman

In addition, these systems are influenced by Directors’ individual cognitive frames, derived from their diverse values and experiences, argued Arizona State’s Amy Hillman and Thomas Dalziel of University of Cincinnati.

Donald Hambrick

Donald Hambrick

Likewise, diverse cognitive frames yield more favorable organizational outcomes only when teams “engage in mutual and collective interaction [and] share information, resources, and decisions,” according to Upper Echelons Theory (UET) developed by Penn State’s Donald Hambrick.
Specifically, women Board members tend to affect group decision-making and financial performance when other Board members are willing to consider their diverse perspectives and experiences.

Thomas Dalziel

Thomas Dalziel

Strong shareholder protections provide “an information-processing stimulus that motivates (Boards) to leverage the decision-making resources (i.e., knowledge, experience and values) that women bring,” asserted Byron and Post.
As a result, they attributed positive financial outcomes to companies with women on their Boards of Directors in countries with these protections.

Previous Blog posts have noted that women’s contribution to group decision-making is not always fully accessed without this type of mandated “information-processing stimulus.”

However, Byron and Post’s analysis illustrates that diverse perspectives provide little benefit if they are not solicited and fully considered.

-*When have you observed diverse perspectives associated with increased profitability and performance?

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