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Dynamic Decision-Making

Most people think that there isn’t any science that we can apply to hiring. Too often we hear that hiring is a black box, and that somehow our psyche and gut will lead us to the right decision.

What people don’t realize is that there is a science that examines how we make decisions.  While we look for every edge in managing other areas of risk in our businesses, we remain woefully ignorant of the potential of behavioral science to improve our hiring decisions.

Your Gut Misleads You  

We all perceive ourselves as rational.  We think we make objective decisions and when we don’t, we think we can put our finger on the reasons why (“I was just in a bad mood today”).  But the reality is that we are anything but rational.  We are heavily influenced by our environment, our feelings, our thoughts, our fears, and our past experiences.  But knowing that we are irrational is not enough.  Knowing how, when, and what we can do about these irrationalities is why we research.

So we asked ourselves:

Can the principles of behavioral science be applied to the hiring process, or do they only work in a lab? 

And if they can be applied, how does that inform our decision-making and help our clients?  For example, imagine the scenario below.

House Money Effect:

You’re in Las Vegas and you pass a slot machine. Arbitrarily, you insert a quarter and pull the handle. Astonishingly, money begins to pour into the trough below. Buoyed by your success, you decide to play again…and again, even though you’re not typically much of a gambler.

Now go back in time and reverse the outcome of that handle pull – you lose. Would you play again? Would you keep dropping quarters, hoping to break even with the house, or would you take your lumps and move on to another game? 

The first scenario, where we “struck it rich” reflects the tendency for human beings to increase their willingness to gamble on an uncertain outcome after experiencing prior wins. It’s called the “house money effect.”

The second scenario splits the scientific literature.  Some research tells us that when we experience a loss, we are less likely to insert that second quarter, experiencing a kind of “shell shock”, while other research tells us that we may try to “break even” and take more risks to square up with the house. And while either option can be justified, the idea has profound implications for the hiring process.

 We wondered, what would happen if we explored the concept of the “house money effect,” and its impacts on hiring?

We compiled over 200 hiring authorities. We asked participants to imagine that either they (individually) or their company (as a whole) had just finished a very successful, or a very tough quarter.

 

 

 

 

 

 

 

 

  • The quarter included a major success or disappointment on their most recent project.
  • Participants were then asked to weigh in on a hiring decision and shown the profiles of two imaginary candidates applying for the same mid-level role.
  • One candidate was portrayed as a steadier and more consistent performer looking for a role that offered stability, while the other was portrayed as a bit more of a wildcard with higher upside, but also higher risk.
  • Participants were provided with a brief description of each candidate, as well as education and employment histories. Both were viewed as equally qualified for the role (we’re putting together a white paper that details the study more thoroughly, but for the sake of brevity and the fact that you’re likely reading this while you eat your lunch, I’ll offer you the highlights).

The Results:

The behavioral team that leads the charge on our research is peering anxiously over my shoulder as I type this (ready to explain - in agonizing depth - the difference between p-values and confidence intervals or any other science that I may gloss over).  My goal is to give you the key takeaways and insights that will help us all hire better.

 

 

 

 

 

 

 

 

  • Those who had experienced wins previously, either individually or as an organization, were significantly more likely to select the riskier candidate than those who had experienced a previous loss.
  • This result shows that the “house money effect” does impact hiring decisions. When we’ve had a win, we tend to favour risky decisions.
  • Those who had experienced a previous loss, either individually or as an organization, were significantly more likely to select the more stable candidate than those who had experienced a previous win. We’re calling this response the “shell shock effect.”
  • The result above shows that a prior loss, even if only imagined, can impact a hiring agent’s decision-making process.

Key Takeaways

If your company, or a hiring agent has experienced a prior win, they are more likely to make riskier hiring decisions. In contrast, if your company or hiring agent has experienced a prior loss, they are more likely to make a decision that minimizes risk.

Unfortunately, by minimizing the risk, they also potentially minimize the upside (higher risk/higher reward candidate is passed over).

Interestingly, by depending on your gut, you could be selecting the candidate that is the opposite of what your team or organization needs. 

This happens whether it’s a steady hand, or a wildcard approach.  By going with your intuition you potentially sabotage the process.

This is why we research. We want to know when psychological bias is rearing its head and what to do about it.  So ask yourself:

 

 

 

 

 

 

  • Did I recently hit a home run relative to company/team expectations, or am I coming out of a bad period?
  • Is my firm coming off of a bad week, month, or quarter?
  • Am I being overly cautious due to a recent loss or failure? Or am I overestimating my skills or the size of our opportunities because of a recent win?

Most importantly, ask yourself -  If my victory or loss were reversed, would l still make the same decision and weigh things the same way? 

By asking yourself what you would do if you or your team had previously experienced a different outcome, you can begin to regain control over the psychological effects that may be hijacking your decision-making.