Why Powerful People Make Bad Decisions

The more power a business leader thinks they have, the worse they get at calling the shots, new research shows.

A study by University of Southern California professor Nathanael Fast has determined that in the business world, unconstrained power can hinder decision-making.

"The overall sense of control that comes with power tends to make people feel overconfident in their ability to make good decisions," Fast said, noting the research aimed to make leaders more conscious of the pitfalls that they can fall prey to.

The research points to British Petroleum executives who downplayed potential risks associated with their oil well in the Gulf of Mexico, claiming it was virtually impossible that a major accident would ever occur. The oil well exploded in 2009, killing 11 workers and costing an estimated $100 billion in cleanup costs.

"What we found across the studies is that power leads to overprecision, which is the tendency to overestimate the accuracy of personal knowledge," Fast said.

[3 Steps to Becoming a Better Leader]

To explore this tendency, researchers conducted multiple experiments that manipulated power by randomly assigning participants to high-power or low-power roles. They were then asked to bet money on their ability to answer six trivia questions.

In the study, those who were made to feel powerful actually lost money betting on their knowledge, and those who didn't feel powerful took fewer betting risks and didn't lose their cash.

Top decision-makers find ways to avoid this problem, Fast said.

"The most effective leaders bring people around them who critique them," Fast said. "As a power holder, the smartest thing you might ever do is bring people together who will inspect your thinking and who aren't afraid to challenge your ideas."

The irony: The more powerful leaders become, the less help they think they need, according to the research.

"Power is an elixir, a self-esteem-enhancing drug that surges through the brain telling you how great your ideas are," said Adam Galinsky of the Kellogg School of Management at Northwestern University and one of the study's co-authors. "This leaves the powerful vulnerable to making overconfident decisions that lead them to dead-end alleys."

The research, "Power and Overconfident Decision-Making," was also co-authored by Niro Sivanathan of the London Business School and Nicole Mayer of the University of Illinois, Chicago. The study appears in the current issue of the journal Organizational Behavior and Human Decision Processes.

Chad Brooks is a Chicago-based freelance writer who has worked in public relations and spent 10 years working as a newspaper reporter and now works as a freelance business and technology reporter. You can reach him at chadgbrooks@gmail.com or follow him on Twitter @cbrooks76.

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