Rational Business-Think: Myth or Rumor?

Western culture in general, and American business in particular, worship at the altar of what gets called “rational” thinking.

Data-driven; deductive; clear logic; structured thinking; hypothesis-testing; statistically significant; scientifically proven; supported by studies—that kind of thing.

In business, we prize rational decision-making, which is generally taken to mean “show me the pro formas,” or “where’s the data to support that conclusion,” or “what’s the IRR or the NPV on the EBITDA?”

But the dirty little secret we all know is—that’s often not the way it works. Very often. (New York City once did a study on corporate headquarter moves out of the city: nearly every move ended up within 25 miles of the CEO’s home).

Sims Wyeth delightfully and provocatively catalogs in White Crow, Black Swan some of the reasons it ain’t necessarily so. A few tid-bits:

We all would agree, I think, that measuring is a good idea because it will enable us to choose the best doctor and the best hospital when we get sick. But it turns out that when data is available, people ignore it and instead make their decisions based on the stories their friends and families tell them–even if the stories contradict the data.

…As John Kenneth Galbraith said, “Faced with the choice between changing one’s mind or proving that there is no need to do so, almost everybody gets busy on the proof.”

…there is the confirmation bias, which is our tendency to reject information that contradicts our beliefs and accept information that confirms what we already believe.…There is the narrative fallacy, which is our weakness for compelling stories; the problem of silent evidence, which is our failure to account for what we don’t see; the ludic fallacy (don’t you love these fancy terms??) which is our willingness to oversimplify and take games and models (remember LTCM?) too seriously.

It’s not just that sometimes our “rational” thinking gets us wrong. The point is we have lost track of the idea that there is more than one way to think.

The term “rhetoric” is considered a pejorative term these days, as in “empty rhetoric.” It lacked that connotation from the times of Aristotle to Lincoln, when it spoke to the art of communication.

More than a few philosophers, and nearly all poets, are familiar with dialectical thinking—thesis, antithesis, synthesis—whose greatest virtue is the generation of insight. Yet it’s considered—literally—nonsensical by the “rational” rules of today.

To do a better job of defining “rational” thinking, we ought to include a whole raft of non-cognitive themes: paying attention to one’s own or others’ emotions, for example, is what “emotional intelligence” is about.

The opposite of “rational” as we have come to use it is not “irrational.” Very few people behave irrationally, if you mean by that doing things against one’s own interest. Fleeing a murderer with a knife—we probably wouldn’t call that “irrational.”

Yet if someone makes a business decision “straight from the gut,” we sneer at it because it’s not “rational.” (Unless Jack Welch writes a book with that title, in which case it becomes a best-seller. Rational?).

Decisions are not better for being “rational” in the narrow way we have come to use it. A lot of what passes for “rational” is just “rationalization.”

We need a business vocabulary for the coming relationship-driven world that encompasses a whole lot more in the word “rational” than what we have let it dribble down to.

(And I didn’t mention decision-making on Iraq even once).