Pearl Harbor, 7 Dec 1941 - Group Think Disaster.
On the morning of December 7, 1941 the US Pacific fleet was bombed by enemy aircraft in an audacious and devastating attack that stunned the watching world. The Japanese invasion of Pearl Harbor
went down in history as a date that would "live in infamy
" (the words of President Roosevelt
It also went down as a classic illustration of Group Think - which is what occurs when a group of individuals makes a disastrous decision or series of decisions despite lengthy discussions and consideration
Other Group Think examples include the calamitous invasion of the Bay of Pigs
(1961), the launching of the doomed Space Shuttle
, Challenger (1986), the Iranian Hostage rescue debacl
e (1980) and the Credit Crisis
All had key factors in common which caused a catastrophic failure of judgement despite appearances - at the time - to the contrary. The eight
Group Think factors were described by Irving Janis
in 1972 and may be summarised as follows:
Illusion of Capability
The group entrusted with making The Decision is collectively (but mistakenly) convinced that it has the skill and ability to do so. This creates misplaced optimism which in turn means extreme risks are unwittingly taken.
Group members jointly agree to discount warnings of impending disaster. Often, they do not reconsider their decision until it is, fatally, too late. The collective nature of the decision lends a false cloak of security.
Belief in inherent rightness of their cause
The group members’ strong belief that they are doing the right thing, results, in practice, in a disregard for the actual ethical or moral consequences of their decisions.
Stereotypical perception of External Advice
Negative views of "the enemy outside" result in the group ignoring warnings that are delivered by Hostile Forces
. I.e., if the person telling you to de-risk the pension plan as a matter of urgency is an overpaid investment banker, it follows he must be wrong.
Pressure is exerted on dissenting group members
Dissenting views are routinely treated as unhelpful, and are discouraged. In almost every case of catastrophic Group Think, there was a dissenting view that turned out to be exactly right. Dissenting views taken seriously may mean the difference between high-fives success and inglorious failure.
Group members are uncomfortable expressing doubts and misgivings
So the group self-censors:
"What if, despite all our discussions, the real yield really is en route to zero per cent?
“What if this gigantic portfolio of exotic credit derivatives is not actually a hedge for the bank's corporate exposure?
“Better not to voice the lurking fear - I've been down that road before; it always leads to tears. And, besides, no-one else seems to share my concerns.
Illusion of Unanimity
The views most strongly expressed, the opinions most loudly expressed, the hectoring leadership, all lead to a false sense of group agreement.
"So we're unanimous, then. No present need to hedge against falling interest rates and rising inflation expectations.
“It's unanimous. There is no need to trim our illiquid short position
"Gentlemen, we are unanimous. It is not necessary to guard against an invasion by the Japanese.
Actually, no. You are not unanimous. Just because nobody voiced their disagreement, doesn't mean you are unanimous. Not the same thing.
"Mind Guards" decide what information should be considered
The Pensions Manager who has an iron grip on the agenda and ensures that certain topics never make the cut. The Head of Credit Derivatives Trading who tells the bank's board: It's all under control - we know what we are doing
. The actuarial advisor who makes a huge directional call on the markets that no-one, not even Warren Buffett, could justifiably attempt. They are all mind guards operating as highly effective anaesthetists within the group.
If you are the Chair, the Secretary, or a member of a group tasked with making important decisions, then for your next group meeting, here’s Agenda Item 1
Discussion: The Dangerous Implications of Group Think
Unless, of course, it is easier not to bother.
[Please note that all opinions expressed in this blog are the author’s own and do not constitute investment advice. Click here for full disclaimer]