“NBA Players, Bank Loans, And 25 Cent Gambles: Exploring The Dangers Of Personal Ego (Ottawa Business Journal)” plus 2 more |
- NBA Players, Bank Loans, And 25 Cent Gambles: Exploring The Dangers Of Personal Ego (Ottawa Business Journal)
- Сentral bank chief: Share of bad loans in Ukraine climbs to 7.2 percent (KYIV Post)
- Consumer loans to pick up in 2H, says BSP (The Manila Times)
| Posted: 07 Sep 2009 03:09 AM PDT
NBA Players, Bank Loans, And 25 Cent Gambles: Exploring The Dangers Of Personal Ego Mon, Sep 7, 2009 12:00 AM EST
When Bad Decisions Happen to Good People – Part 3
What are the impacts of personal egos you have seen at your office? How can your ego impact your ability to make good decisions? How do personal egos interfere with the relationships at your office/with your clients? These are questions for which each of us can draw upon countless examples.
My two previous Business Matters columns (July 6th and July 27th) highlighted some contextual/situational factors (e.g., the influence of authority figures or elevated time pressures) that may compromise our ability to make sound/ethical decisions. In the final column of this series, I will use one last point of reflection, which often presents the biggest challenge: the management of our personal ego.
The Perils of Ego
Research has concluded that once we have committed to a course of action, we find it very difficult to stop, even if considerable evidence suggests that we should. The area of research exploring 'escalation' and/or 'sunk costs' has provided both interesting and compelling data that highlights this tendency.
One study examined whether the National Basketball Association (NBA) 1 draft order (i.e., how high a player was selected in the entry draft from college) had an impact on the amount of playing time he received. Given that the primary goal of professional sports franchises is to win as many games as possible to maximize ticket sales, one would assume that the most productive players should receive the most court time.
However, when the NBA data were closely examined, the study authors found the opposite trend. They concluded: "the higher a player was taken in the college draft, the more time he was given on the court, even after controlling for other logical predictors of playing time, such as performance, injury, and trade status."
The authors concluded that the very public commitment the franchises made to their higher drafted players in terms of money as well as through media promotion heightened the pressure to stick to their decision of giving more playing time, even when the player's productivity did not warrant it. Indeed, when compared with a player with similar productivity who was drafted lower, the higher drafted player received more playing time. Given the lack of a rational explanation for this behaviour, it was suggested that the franchise management wanted to 'save face' in their choices by inappropriately affording more playing time to their higher draft picks.
One of the criticisms lodged toward this study was whether the findings from an analysis of a professional sports league would generalize to a business environment. In response, one of the authors examined banking industry practices 2 to determine whether a similar trend would exist.
In this groundbreaking research, the authors explored the level of commitment banking institutions showed to problem loans. In particular, they wanted to see whether a change in senior leadership within a bank (e.g., those who were directly involved in approving the problem loans in the first place) would alter the management approaches to these files.
The results revealed that when banks experienced turnover within the senior leadership, the management of problem loans improved, as they undertook corrective action and/or intervened to minimize/eliminate any future losses. The authors argued that bank executives who had sanctioned the problem loans at the outset were highly unlikely to 'pull the plug' or alter their course of action since it would mean acknowledging their initial costly mistake. However, those who were not initially responsible for the decision would not wrestle with this reality and conversely would take immediate action. Again, this suggests a preoccupation with preserving our personal ego that may undermine the quality of our actions.
One of the recommendations from the study to promote more 'objectivity' in the review process was the creation of 'workout groups' that would be responsible for managing problem loans and would ideally not involve the individual who had approved them in the first place. This strategy had been used quite successfully in larger banking institutions. In this context, the workout groups could consider the optimal ways of handling problem loans without adding the complication of managing personal egos or 'saving face.'
The last study I will mention directly introduced the 'ego' aspect of decision making into the study design. A few years ago, a team of researchers conducted a series of studies to see how a direct 'ego threat' compromised the decision making abilities of individuals 3.
In this study, the participants were told that the purpose of the research was to examine personality and its relationship to decision-making. To accomplish this goal, each individual was given $5 in quarters and were told they could play a game of chance, called the 'counter game,' that provided an opportunity to double their money. Each 'roll' cost them 25 cents and a random number generator, similar to a slot machine, was used to determine whether the participant won the prize. The participants were free to end the experiment at any time and could keep the amount of money they had remaining.
Unbeknownst to them, however, the researchers created two groups of subjects. The first group, referred to as the 'control group,' only received the above instructions. The second group, labelled 'ego-threat,' received the exact same instructions with the exception of the following that was added to the end of the script:
The results showed that ego-threatened participants lost significantly more money than those who did not receive the additional prompt. In fact, on average, they lost over $1 more than the control group. This demonstrated that the threatening of one's ego was associated with poorer quality decisions.
They summarized the findings from their four studies as follows:
Concluding Thoughts
These studies show that both internal and external ego threats may compromise our decision-making and lead to inappropriate choices.
Making a decision and "sticking with it" is often trumpeted as the best way to reach our goals. In fact, persevering in the face of adversity is not always a bad thing. There are several examples throughout history where an unparalleled commitment to a personal goal/value led to amazing discoveries or had tremendous positive impacts on our society.
The evidence presented above might simply allow us to recognize the role of ego in our decision-making. Before making a decision we might ask ourselves, "What decision am I leaning towards and is my ego influencing that decision?" For example, if we have gotten involved in a risky venture/business decision and negative evidence is accruing, are we reluctant to change course because it will mean publicly (or personally) admitting an error in judgement or because someone else is "challenging us" or is it because we truly believe that success imminent? Involving others in this process (as illustrated by the 'workout groups' in the banking example) could result in a more appropriate decision.
Although the mainstream media generally promotes megalomaniacs as the pinnacle of leadership and success, a crucial point to remember is that they are the exception rather than the rule. Jim Collins' book "From Good to Great" demonstrated that the 11 greatest companies (as measured by stock market returns) were those that exhibited humility at the highest levels within the organization. This allowed them to be aware of their decisions and be open to input from others.
Good business decisions do not happen by themselves. They are the result of a thoughtful and informed process, which includes being aware of one's triggers and challenges and developing a plan to address them. Understanding the influence of our personal egos allows us to avoid potential pitfalls and creates an opportunity for good decisions to happen to good people.
Craig Dowden, Ph.D. Managing Director André Filion & Associates - Ottawa (613) 230-7023
André Filion & Associates is an industrial psychology and career management firm that assists organizations and individuals in leadership development, selection support, succession planning, and career transition/outplacement services. Through Verity Filion, our national career management company, we provide bilingual services to clients across Canada including locations in Vancouver, Calgary, Winnipeg, Toronto, Mississauga, Québec City, Montreal, and Halifax.
References
1See Staw, B.M., & Hoang, H. (1995). Sunk costs in the NBA: Why draft order affects playing time and survival in professional basketball. Administrative Science Quarterly, 40, 474-494. 2Staw, B.M., Barsade, S.G., & Koput, K.W. (1997). Escalation at the credit window: A longitudinal study of bank executives' recognition and write-off of problem loans. Journal of Applied Psychology, 8, 130-142. 3Zhang, L., & Baumeister, R.F. (2006). Your money or your self-esteem: Threatened egotism promotes costly entrapment in losing endeavors. Personality and Social Psychology Bulletin, 32, 881-893.
To read more Business Matters articles from André Filion & Associates, click on: http://www.ottawabusinessjournal.com/businessmatters18.php
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| Сentral bank chief: Share of bad loans in Ukraine climbs to 7.2 percent (KYIV Post) Posted: 07 Sep 2009 09:28 AM PDT
The share of bad loans in Ukraine's banking system is currently 7.2%, but they are fully covered by reserves, Governor of the National Bank of Ukraine (NBU) Volodymyr Stelmakh said at a press conference in Kyiv on Monday. According to the NBU's previously announced statistics, the share of bad loans in the overall amount of funds lent by Ukrainian banks to their clients grew by 0.7 interest notches in July 2009, to 6.17% as of August 1, 2009. As the NBU said, the amount of bad loans in money terms in July 2009 expanded by 13.2%, or UAH 5.38 billion, to UAH 46.06 billion, whereas in June, it grew by 11.5%, or UAH 4.18 billion. From January 1 to August 1, 2009, the amount of bad debts soared by almost 2.6 times, or by UAH 28.04 billion.  This posting includes an audio/video/photo media file: Download Now |
| Consumer loans to pick up in 2H, says BSP (The Manila Times) Posted: 07 Sep 2009 08:05 AM PDT By Maricel E. Burgonio, Senior Reporter CONSUMER lending will pick up in the second half due to sustained demand for real estate, cars and credit card use, the Bangko Sentral ng Pilipinas (BSP) said. Consumer lending continues growing despite the crisis. We expect at least a healthy level, going forward. Were quite happy with what we have right now, BSP Deputy Gov. Nestor Espenilla told reporters. He said consumer loans could grow in the high single digits this year. It should pick up. Probably, a high single digit, he said. The most recent BSP data showed that consumer loans inched up 3.3 percent to P398.6 billion in the second quarter compared with the first quarters P385.8 billion. Compared with the second quarter last year, loans picked up 13.1 percent from P352.5 billion. The bulk of consumer loans consist of residential real estate loans at 41.4 percent, or P164.8 billion. This segment grew 2.8 percent from the previous quarters P160.4 billion but rose 19.5 percent from a year agos P138.0 billion. Auto loans increased by 5.5 percent from the first quarters P81.8 billion and by 9.0 percent from last years P79.1 billion. Credit card receivables amounted to P129.6 billion, up by 3.1 percent from the first quarters P125.7 billion and by 5.7 percent from last years P122.6 billion. A government source said the proposed cap of one percent on credit card interest rates would fuel consumer-lending growth. That is something that we are also watching right now. Of course it is still very early to see the effects. If that happens, it will have an effect on consumer lending, the source said. A senator is seeking to place a monthly ceiling on card rates under the proposed Credit Card and Other Access Device Act of 2009. Banks and other credit card companies charge up to 3.5 percent per month on consumer purchases using the plastic. The BSP earlier said the establishment of the countrys first credit bureau would hasten the reduction in bank lending rates. In October last year, President Gloria Arroyo signed into law Republic Act 9510, or the Credit Information System Act (CISA), which seeks to establish the Credit Information Corp. (CIC). The CIC is tasked to collect, consolidate and provide credit information on borrowers. Industry sources said the Securities and Exchange Commission has yet to disclose its plans on when to put up the credit bureau. Personal consumption accounts for more than two-thirds of the Philippine economy. In the second quarter, the countrys gross domestic product (GDP) grew by 1.5 percent, supported by the services and agriculture sector, an improvement from 0.6 percent in the first quarter. An indicator of economic performance, GDP is the total value of final goods and services produced in a country.  This posting includes an audio/video/photo media file: Download Now |
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