FOBO, decision-making weakness and finance in the middle of it all

The professionally objective role of Finance 

The quality of decisions and their effective implementation are essential factors for the success of companies. It is often a matter of optimising or maximising results. In financial controlling, one of the most central tasks on the agenda is "decision support", which is practically reflected in the following activities:

•      Data preparation as a basis for decision-making,
•      Plausibilisation of conclusions (e.g. in business cases),
•      Gatekeeper and facilitator role as part of management decisions,
•      Assessing the implementation of decisions (e.g. in the course of reporting or through analyses),
•      advising management on (corrective) actions and further decisions.

But what if these activities are systematically distorted?

The self-image in financial controlling - which I know well from my own practical experience in a 20-year corporate group career - is often shaped by attributes such as neutral, objective or rational. Being called a "no nonsense guy/lady" may reinforce this image, as does the use of state-of-the-art tools or processes.

The reality?

There are also human beings in Controlling & Finance. It can be said on the basis of a well-researched field that phenomena such as unconscious biases or various deeply rooted patterns do not stop in this area either. One phenomenon of these is FOBO - "the Fear of Better Options".

The term FOBO, like its more widely known counterpart FOMO ("Fear of Missing Out"), goes back to the US American investor and author Patrick McGinnis. He considers FOBO to be particularly problematic in decision-making.

Why?

FOBO in companies - the risk for maximisers

The "fear of better options" refers to the inability to decide between different options when they seem possible and good.

In business, there are many goals and interests to consider. We have often been socialised to maximise results and choose the best option. This can be very unsettling and the number of options has tended to increase. The internet and the mass adoption of sophisticated technologies have accelerated the availability of information.

This can lead to us being overwhelmed by choice and overthinking - even in business. After all, there might be a better option that we don't know about yet!

The desire to maximise the outcome of a decision makes FOBO highly relevant. The usual incompleteness of information combined with additional (and potentially unknown) options is a burden.

The effects of FOBO and the link to Unconscious Biases

FOBO can affect decisions of all kinds, investments as well as strategic direction, planning and forecasting as well as HR. The effects of FOBO are typically a combination of the following factors:

•      Stress, as as many options as possible are sought,
•      Fear of not achieving the goal,
•      frustration during or as a result of the decision-making process,
•      over-analysis of identified options,
•      paralysis and inaction.

Unconscious biases have already been mentioned - in FOBO, the following, for example, play a role:

•      Choice paradox ("overchoice" or "choice overload bias"): too many alternatives hinder decision-making.
•      Omission bias: in the case of potentially negative consequences of active decisions, people tend to refrain from making them because they perceive them as less responsible.  
•      Decision fatigue: due to the constant effort to make decisions in the VUCA world, mental resources diminish, resulting in shortcuts and a decline in decision quality.

The effect?

Instead of finding the best option and maximising results, an organisation decides too late or not at all. With the exact opposite result - instead of maximising, resources are reduced.

So what?

Some degree of FOBO is both rational and useful, as choosing the first available option is not necessarily the best one. Beyond a certain point, more options no longer increase the chances of achieving a goal, but jeopardise it.