Why Do We Organize: Focal Bias

The fundamental question of organization theory, which is strategic management without worrying about performance, is why do people organize? One possible reason is that organizations can be better at making decisions than people are because organizations can know more and process information better (inside joke: without reifying the group mind) than individuals can.

When people make decisions, they are trapped by what they know or can easily find out. They tend to latch onto the first solution they come across. And they tend to think that whatever issue they are focusing on is critically important. Every maintenance worker knows that what the organization really needs is a riding power sweeper.

That last tendency is "focal bias," a cognitive bias that gives outsized importance to a particular detail of a problem because they are focusing on that detail. The classic example is to, say, ask New Englanders in February how much happier they'd be living in Los Angeles, where it's a balmy 72 and sunny. In effect, when focused on a detail, like the weather in LA, people confuse how much nicer the weather is with the answer to the question they've been asked, how much happier they'd be. If the weather is much nicer, then it follows (focal bias suggests) that they'd be much happier. In fact, studies show that weather has almost no impact on average happiness.

In other words (and you knew there had to be some math in here somewhere), if Y is happiness and X is weather, focusing people on the weather leads them to assume that Y = X, so that improving the weather leads directly to improved happiness. In fact, the formula for happiness is probably more like: Y = b1A + b2B + b3C ... + .01X + b25Y + b26Z + e. Happiness results from a host of factors, with weather having such a small impact that it gets lost in the noise.

A nice illustration of focal bias can be found here at the Volokh Conspiracy, where Professor Volokh uses focal bias to make his point.

How does organizing help overcome focal bias? In theory, problems are broken up within organizations so that different people focus on different aspects. To act on their solutions, they have to go to a third party (top management, ultimately) for access to scarce resources. Presumably, that forces them to make their best case for why their portion of the problem matters most. Of course, top managers have their own biases, and studies have shown that CEOs who came up from marketing prefer marketing solutions, while CEOs who came up from Finance prefer financial solutions, etc.