Decision-making - Broadening the information base (3 of 4)

Good decision-making is often impaired by two key factors:

1. Limited information
2. Narrow focus, especially when dealing with abnormal conditions or events outside the decision-maker’s experience.

A 2012 study by Miguel Lobo (INSEAD Abu Dhabi) and Dai Yao (INSEAD Singapore) confirms the importance of information flow in good decision-making. It also broadens the discussion and introduces a useful method for handling conflicting forecasts—which we’ll cover in the next post.

What the Study Found: Extreme Events Matter More Than Expected

The study analyzed 20,000 estimates and forecasts from 17 databases, comparing data from two groups:

• A panel of MBA graduates
• Forecasts from 50 economists

It focused on extreme events—the kind of “one in a thousand” outcomes that don’t fit neatly into standard probability models.

🔹 Key finding: Extreme events happen more often and have a bigger impact than predicted by traditional models.

Why?

• The world is changing faster than it used to, making past trends less reliable for forecasting.
• While we understand normal conditions well, we struggle to predict and react when something unexpected occurs.
• Even experts misestimate rare events—they underestimate their likelihood by a factor of 10.

This has real-world consequences. Because catastrophes are perceived as far less likely than they actually are, contingency planning doesn’t get the priority it should. (Think Hurricane Katrina.)

The Three Causes of Poor Decision-Making

The study identifies three common pitfalls that lead to flawed decisions:

1. Overconfidence in one’s own knowledge and judgment.
2. Relying too much on a single expert’s opinion, rather than considering multiple viewpoints.
3. Failing to gather a broad enough range of data and perspectives.

The solution?

You need rapid and accurate data, a clear understanding of where to source it, and a network of people who can provide different insights.

But there’s another critical factor the study didn’t emphasize enough…

A Fourth Cause of Poor Decision-Making: Lack of Experience

Many leaders rise to senior positions through expertise in Sales, R&D, or Engineering—only to find themselves suddenly managing multimillion-dollar budgets without a solid foundation in business finance.

Fortunately, there’s a fast and effective way to fill this gap:

• A facilitator-led business simulation offers an intensive, hands-on way to understand financial decision-making.
• In just two or three days, participants run a business, gaining practical experience with:
  • Financial statements and ratios
  • KPIs, pricing, and costing
  • Cross-functional business decisions

This is what Andromeda Simulations International provides—an Income|Outcome business simulation workshop is the chance to develop decision-making skills in a risk-free environment, improving long-term business health by ensuring leaders make better, more informed decisions.

Let us know how we can help your team make better business decisions!

‍