By Barb Kachelski, CAE
We all make mistakes. A common reaction is to "put the mistake behind you and move on."
This reaction would be a mistake, in the eyes of Joseph Hallinan, Pulitzer Prize-winning journalist and author of Why We Make Mistakes.
Hallinan provided attendees at CUES' 2010 Directors Conference with a framework for thinking about mistakes in a positive, constructive way. He asserted the best way to do that is to start with the golden rule of mistakes:
"We are all subject to predictable biases in the ways we perceive not only ourselves, but the world around us."
Inattentional blindness is the one of the predictable biases. "Looking is not the same as seeing," Hallinan said. "Human attention is limited… You can't notice everything. But you think you can. The things you do notice are by and large things your life experience teaches you to expect."
Two things to remember about this type of error are:
- It's real. Inattentional blindness happens every day.
- These mistakes are by and large invisible at the time you make them. "Stub your toe, you know immediately and can adjust your behavior," Hallinan said. But inattentional blindness results in "stealth mistakes, so you go down the road not knowing, which has ramifications."
Hallinan provided several examples of inattentional blindness. Two Transportation Safety Administration studies that have become public show that when TSA agents put fake bomb parts and explosives into baggage their success at detecting them is surprisingly low! O'Hare baggage inspectors missed 60 percent of fake items, and that was good. In Los Angeles, inspectors missed 75 percent!
Radiologists fared only a little bit better than baggage inspectors. The generally accepted error rate for the detection of early lung cancer is 20-50 percent. Mayo Clinic studied "normal" X-rays of patients who subsequently developed lung cancer. Experts missed 90 percent of the tumors.
Unfortunately, the same holds true in the financial industry. Hallinan used home prices as an example. Congress commissioned a study to find out what went wrong. Heads of the nation's four largest banks testified. Jaimie Diamond, head of J.P. Morgan Chase, said, "I've already mentioned the biggest mistakes we made. In mortgage underwriting, somehow we just missed that home prices don't go up forever…"
Diamond was asked, "Did you do a stress test that showed housing prices falling?"
He responded "No, I would say that's probably one of the big mistakes."
Inattentional blindness errors aren't individual; they are systemic.
One side effect of this blindness is overconfidence. Hallinan defined overconfidence as "the overestimation of one's actual ability, performance, level of control or chance of success; the certainty regarding the accuracy of one's beliefs."
Hallinan said overconfidence is a general feature of human psychology. People overestimate their own driving ability, good looks and IQ, for example. "Overconfidence is so pervasive, only the clinically depressed are not found to have it."
Confidence and competence are not the same thing. Overconfidence has little to do with underlying knowledge or mental ability.
Men are more overconfident than women are. Overconfidence is rampant among corporate executives. Hallinan shared the results of an academic-developed quiz showing 99 percent of people proved overconfident. Every group believed it knew more than it did.
Overconfidence results in two decision-making errors:
- underestimation of risk and
- overestimation of the odds of success.
Hallinan shared quotes reflecting overconfidence of CEOs of Merrill Lynch, Leman Brothers, Bear Stearns and AIG. "What's important isn't that they were all wrong; it's that they were all wrong in the same direction… When people err, they err in predictable ways. This is ingrained in you and me… permanently wearing rose-colored glasses."
Hallinan shared several examples of overconfidence inaccuracy:
Students had a much better memory for good grades than for bad, demonstrating 89 percent accuracy for remembering As, but only 29 percent accuracy for Ds. Only 10 percent of the students remembered their grades as being lower than they actually were.
Even soldiers think they are better shots than they are. 75 percent of soldiers shot worse than they expected.
Professional golfers' performance was analyzed to find they make 54.8 percent of the six-foot foot shots they attempt. However, golfers thought they were much better putters, estimating they make 90 percent of their shots!
We do not even see ourselves accurately. Researchers took random people and photographed them. The images were digitally enhanced to make both better and worse-looking images. Study participants were asked to pick the images that were really them. They picked the better-looking version rather than the true image!
Hallinan said lessons on why people make mistakes are very important to credit union volunteers, who will be forced by various experts to rely on them to set the policy of their credit unions. "Just because someone is an expert, they are subject to the same kinds of bias that we talked about. Their opinions are probably not going to be all that they thought… "The prudent thing to do is to cushion, to take into account the uncertainty."
How can directors reduce mistakes?
- Question your assumptions.
- Improve feedback, defined by Hallinan as "a signal that sends back to the user of any device what's been done and what has been accomplished." Dial tones, the sound of buttons on cell phones, or the jackpot results of a slot machines are all forms of feedback. Oil drilling firms compare their predictions to what actually happened, using feedback to learn and improve. Directors can also, reviewing predictions and comparing them to what actually happened in the credit union or industry. Strong feedback statistics can virtually eliminate overconfidence.
- Impose constraints. Automobile engineers developed a constraint for automatic transmission vehicles. The driver needs to use the brake before putting the vehicle into gear. This constraint virtually eliminated the error of crashing backwards into the garage door. Pilots use checklists. Surgeons use a form to prevent operating on the wrong patient or wrong body part. In fact, a simple 19-point, two-minutes-to-complete questionnaire was credited with causing death rates from surgery to fall by 47 percent! Constraints work in the financial world, too. Hallinan shared a quote crediting Lehman Brothers failure to "a culture with little respect for its own stated risk limits. It blew through those restraints repeatedly."
So the next time you or your leadership team makes a mistake, don't move on until you've studied what happened and learned how to prevent avoidable errors in the future.
Barb Kachelski, CAE, is CUES' SVP/chief operating officer.
