Is your company’s narrative stopping you from planning effectively?

The solution is to incorporate more mathematical thinking in decision making

Reid Hastie | May 15, 2020

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If you’ve ever been in a courtroom—or if you just enjoy legal dramas—you’ve seen how narratives help people make sense of complex information. 

Most of a trial is taken up by lawyers calling witnesses and presenting evidence in what can be a jumble of information. But as is often the climax, the prosecutor or defense attorney weaves those bits together into a closing argument that puts that information into a believable narrative. With minds made more for stories than analyzing data, jurors can determine what most likely happened and render a verdict.

Nancy Pennington of the University of Colorado and I called this way of thinking “explanation-based decision making.” Our work showed how people take the facts at hand and create causal models to make sense of them. We even fill in missing pieces if they fit logically with the information that we have been given.

But there’s a downside to narratives. Explanation-based decision making can lead to the narrative fallacy. When that happens, we’re relying too much on the narrative to explain a conclusion and may be missing data or information. That can be problematic when we rely on a faulty narrative to make decisions about the future.

Consider a business that’s planning an expansion. Maybe the owner’s narrative attributes success to grit, hard work, and determination and expects that to lead to further success. That’s a great story, but what if that business’s to-date success also depended on inept competitors that allowed it to thrive when it otherwise would have struggled? Going forward with an expansion without considering what would happen if competent competitors enter the market could be a recipe for disaster.

The solution is thinking in a more mathematical way, though it’s a method in which we don’t tend to excel. But I’d argue that it’s especially important during the coronavirus outbreak, when our coherent, simple narratives blind us to the massive, intricate ramifications of the dynamic epidemic system.

Luckily, we can combine the two ways of thinking to let logic guide our narratives. One exercise that can help is to conduct a worst-case, in-hindsight simulation. Imagine that the enterprise you are concerned with fails dramatically. Then ask yourself, how did that happen? What story would have the disaster as its conclusion?

An hour spent on this exercise is sure to make your projections more realistic and your reactions to obstacles, if they arise, more constructive. A good planner may think up four or more of these scenarios to ensure that before going forward, her bases are covered.

A story about overcoming adversity creates a strong, helpful narrative to build on going forward, and we all love a good story. But to plan effectively for the future, we need to anticipate more than one future story. 

Reid Hastie is the Ralph and Dorothy Keller distinguished service professor of behavioral science at the University of Chicago’s Booth School of Business.

This column is part of the Chicago Booth Insights series, a partnership with Crain’s Chicago Business, in which Booth faculty offer advice for small businesses and entrepreneurs on the basis of their research.