Why Politicians and CEOs Make Bad Decisions


We don't admire our elected representatives. According to RealClearPolitics, Congress's approval rating is hovering somewhere between 11% and 13%, and the decline has been steady since January of 2009. The same can be said of Wall Street executives and other powerful businessmen.

It's common to hear people rant about corruption and incompetence in Washington and on Wall Street, myself included. While there is some truth to both charges, the reason why powerful people are often bad at their jobs is probably a little more nuanced. A new study suggests that people with too much power actually have a harder time making good decisions. 

Researchers conducted five experiments and found that people who accumulate power can develop unwarranted confidence in their own abilities, which, as we all know, is usually a precursor to massive mistakes. 

In one experiment, study participants were asked to recall information and bet on the accuracy of their knowledge. They wrote detailed accounts of an experience when they either held or lacked power over other individuals, and answered a series of questions to set a "confidence boundary" on how well they performed.

The first three experiments required participants to perform similar recall tasks; the fourth looked at power in the workplace; and the fifth measured how people viewed their abilities when randomly assigned to high and low-power roles. All the experiments revealed that participants overestimated the accuracy of their own knowledge. 

Previous research has found that overconfident people tend to reach powerful positions in society, and the present study concluded that this overconfidence is the start of a vicious cycle. Narcissistic individuals accumulate power, which increases their self confidence and further promotes poor decision making. The results may explain why politicians and business executives underperform (the BP oil disaster) or prematurely lose their jobs (2010 Republican sweep of the House). 

According to the study's authors, "The results ... indicate that feeling powerful exacerbates overconfidence ... not only do overconfident people tend to acquire roles that afford power ... but the subjective sense of power brought on by these roles causes people to become further overconfident in their own knowledge. The present findings offer a compelling explanation for why the powerful often underperform and/or lose their power prematurely: overconfident decision making."

Most importantly perhaps, people in positions of power are often called on to make decisions that have a lasting impact on society, accuracy is very important. Consequently, these are the kinds of decisions that are most distorted by overconfidence. 

As a result, the study suggests that one of the best ways to prevent problems that arise from bad decision making is to limit the power we cede to our leaders, whether corporate CEOs or presidents and congressmen. "The present findings indicate that the effects of power, left unchecked, may serve to hinder their performance on such [important] tasks."

Photo Credit: Wikimedia Commons