Slow Decision Making in Large Orgs

Why is there a slow down in fast decision making as businesses scales?

I was talking to a friend about this. And, while at first go, this might seems like the reason why businesses are disrupted, if you dig deeper and take a leaf out of Daniel Kahneman's research, this makes sense.

The answer. Loss aversion.

One of Kahneman and his long time collaborator Amol Tversky’s earliest insights was the simple observation that we feel the pain of loss more intensely than the pleasure of profit. It’s irrational to an economist, but we put more value on not losing $100 than we do on gaining $100.

Interestingly, behavioral science experiments have shown that people typically need to gain about 1.5-2.5 times more than they might lose to feel comfortable taking a risk.

Loss aversion can manifest in various ways, such as:

- Investing only in "safe" products with low returns

- Refusing to sell underperforming stocks

- Car ownership of an old vehicle that frequently breaks down versus investing in a new more efficient vehicle