Studying Why Errors Are Made

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Even the smartest CEOs make errors. Indeed, often the errors could have been predicted.

How those errors come to be made so that the best strategic thinking can be applied within credit unions is the subject of a new report from the Filene Research Institute entitled "Strategy Errors Made by Even the Smartest CEOs: How to Avoid Them in Credit Unions." The study is based upon presentations and discussion at a colloquium held at Pepperdine University.

The colloquium brought together credit union CEOs and top researchers in the decision-behavior field. Filene said the purpose was to examine frequent CEO strategy errors in business, how these errors are made in the credit union industry, and how they can be avoided.

Researchers Charles Holt, A. Willis Professor of Political Economy at the University of Virginia; and Gary Charness, professor of Economics, University of California, Santa Barbara, presented experimental situations in game theory which expose potential errors in negotiation and value judgments. The researchers suggested that new behaviorally-relevant strategies in economics provide insight into the decision-making process. Among the 10 pitfalls examined by the two researchers are overconfidence, the risks involved in successful bidding, elements of adverse selection and the inclination to maintain the status quo.

The report also features case studies undertaken by credit union CEOs, applying the principles presented by Holt and Charness to real-life credit union policies and practices. In small group discussions, they address issues such as indirect lending, CEO/board relations, technology mandates and strategic planning considerations.

"This is important research for credit union leaders," says Bob Hoel, Filene Executive Director. "It demonstrates that even the very best CEOs are subject to certain biases and tendencies that can impair their critical judgment. The first step in working to avoid pitfalls is to recognize that they exist, and in so doing to arm ourselves with the means to overcome them."

For more info, see CUJ Resources box.

CUJ Resources

Copies of "Strategy Errors Made by Even the Smartest CEOs: How to Avoid Them in Credit Unions" are available free to Institute members; $125 to non-members. For info: (608) 231-8550 or www.filene.org.

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