Sometimes We Are Individually and Collectively So Stupid
Sometimes our environment and our own mind processes have us make some really stupid decisions - both as an individual and as an organization. Here are some real gems on stupid thinking from a column by David Brooks of the NY Times. While he starts by discussing a current rethink of the rational classic economic models, those of us in the franchise industry recognize that the columnist is inadvertently describing the sometimes irrational behavior of franchise ownership and institutions.
"We don’t perceive circumstances objectively. We pick out those bits of data that make us feel good because they confirm our prejudices." - NY Times
Being selective in picking out data that confirms our own bias is part of the human condition. Brooks cites an MIT study that shows how our mind can trick us into making bias and dumb decisions.
Franchise investors often make similar mistakes in buying a particular franchise simply by walking into a store and dreaming of what owning it would be like. Nothing wrong with that but the way our mind works is that we can let our homework efforts confirm our bias.
All that effort of going through the franchise disclosure document, listening to the franchise sales person, meeting franchise executives and interviewing franchise owners to confirm facts that build our dream and to discount factoids that don't. That bias lands a lot of new business owners into trouble down the road.
And here is another gem. In two sentences, Brooks has hit the nail on the head in explaining why group think is so natural.
"Most important, people seek relationships more than money. If behaving a certain way helps a stock trader or a regulator fit in with his crowd, he’s likely to keep doing it without too much rigorous self-examination."
This is one factor on why franchise advisory council members often confirm what the franchisor wants to hear. It explains why employees tend to be fairly myopic in telling their boss what direction the chain should go. Or why the franchise owner tells the buyer what he knows the franchisor wants him to say rather than what is really happening in his store.
Strong franchise relationships can translate into money. It can mean a promotion for employees. It can mean favors by a franchisor to a franchise.
The group-think dynamic is powerful by itself. It is even more of a poison when an institution's managers select team players but weed out irritating thinkers. That lack of whistle-blowing and questioning causes all sorts of problems - individually and collectively.
The level of original thinking in a chain's leadership, staff and franchise owners is something to understand when investigating a franchise system to invest in. If everyone is singing the same tune, beware.
Then there is this quote.
"The classical models presumed a certain sort of orderly human makeup. Inside each person, reason rides the passions the way a rider sits atop a horse. Sometimes people do stupid things, but generally the rider makes deliberative decisions, and the market rewards rational behavior... This view explains a lot, but not the current financial crisis — how so many people could be so stupid, incompetent and self-destructive all at once."
Brooks seems to be alluding to those who in any other time would have rented. But in our reach for the ownership society, these renters who should have stayed renters turned into home buyers. With no means to buy a house, renters went against their own common sense to acquire long-term mortgage payments on temporary cheap rates, not thinking about what happens when floating rates increased in the future from their historic lows.
Everyone else was doing it. These new home buyers were collectively creating the great ownership society, where we had more home owners than any other time. We also had a housing bubble.
Brooks seems to be speaking about how banks also became stupid. How the securitization of sub-prime mortgages encouraged lenders to do something that they wouldn't have done before - to ignore risk by lending to the NINJA buyers - those with No Income, No Jobs, no Assets.
As one of our members likes to often say, "Never underestimate the power of stupid people in large numbers." Group think. Institutional think. Industry think.
Individual stupidity too. Each of us has it. We individually and collectively need to learn how to chip away at it.
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Read David Brooks' original op-ed column at the NY Times
Related reading:
Why So Many Minds Think Alike, CNNhealth.com
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