Conventional wisdom says that social networking helps decision making, because it helps people acquire the knowledge they need to make better choices. The more extensive and active your social networks, the better decisions you'll make.
But is this wrong? Could social networks actually impair your judgment and decision making? Francis J. Flynn, a business professor at Stanford University, and Scott S. Wiltermuth, a graduate student also at Stanford, conducted a study that asked participants to discuss their opinions on different ethical dilemmas. In one hypothetical scenario, a manager catches an employee pilfering pens, paper and other small office supplies. Corporate policy requires that this person be fired, but she's one of the company's best workers, as well as a long time employee. Her manager decides to give her another chance. Was this an ethical decision?
The researchers also asked the study participants to conjecture about how their colleagues might view those same dilemmas. Finally, the researchers asked the participants for information that let them assess the participants' positions in social networks. Whom did they turn to when they needed advice?
Flynn and Wiltermuth conducted the experiment with three groups: business students, executive education students and a large manufacturing company's marketing department employees. The results were the same for all three samples: The more people were connected to their peers, the more they tended to overestimate the degree to which their judgments were in agreement with others' views. This is known as “the false consensus effect.” This effect was observed even when participants held a minority opinion: they mistakenly believed they were in the majority. It seems that social ties tend to exacerbate -- not mitigate -- the false consensus effect. Social ties strengthened the illusion that consensus existed even when it didn't.
This result might seem counterintuitive, but it has a plausible explanation. Past studies have shown that when people interact, they tend to affirm their commonalities. Two colleagues who are both fans of a particular sports team, for example, will talk about the team frequently in their workplace conversations. These two colleagues could then mistakenly believe they have more in common than they actually do.
This misperception could be especially true regarding ethical and moral beliefs, since coworkers often don't discuss such issues. Instead, coworkers tend to discuss their families, current events and other topics they perceive as safe. Flynn and Wiltermuth have shown that having this ethical blind spot can be particularly dangerous for people at the center of social networks, because these individuals are more likely to perceive themselves as being more in touch with others' opinions than they actually are.
“If members of organizations erroneously assume that their ethical judgments are in line with the prevailing view,” write Flynn and Wiltermuth, “they may feel emboldened to act and only learn of their misjudgment when it is too late to avert the consequences.”
CEOs and other executives are particularly vulnerable to making such miscalculations because past research has also shown that people in powerful positions are more likely than others to search for evidence confirming their beliefs rather than exploring contradictory information. Moreover, ethical dilemmas are inherently tricky.
Flynn and Wiltermuth's study also offers a new way in which to view the financial crisis -- in particular, the subprime mortgage meltdown. Some people signed up for mortgages they knew they would later struggle to pay. Mortgage companies approved these applications. Wall Street packed those questionable loans into collateralized debt obligations, which ratings agencies approved and sold. At every step in this sequence, the false consensus effect likely played a role, making people feel comfortable -- even when engaging in dubious business practices -- because of their misperception that everyone was doing this. And, Flynn and Wiltermuth's research suggests, this might be particularly true for the well connected Wall Street executives.
This article is adapted from “How Executives Can Make Bad Decisions,” by Alden M. Hayashi, which appeared in the Summer 2009 issue of MIT Sloan Management Review. The complete article is available at http://sloanreview.mit.edu/smr/.