Whether you are a group of like minded investors or board of stockholder who will decide the future of your company, big financial decisions always entail some risk. However it is not only the numbers you need to be afraid of.

Groups are vulnerable to the psychological phenomenon of groupthink (Irving Janis, 1972). When there is a strong desire for conformity inside a group, individual members may accept dysfunctional decisions to preserve unity. On top of that, conformity causes group polarization. In which the groups seems to form an extreme decision as each individual members feels that his views are validated by other members of the group and hence correct.

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Groupthink causes groups to take impractical decisions and group polarization takes those decisions to an extreme. Let us take an example from popular media to better understand this phenomenon.

In the movie’World War Z'(2013), When Gerry Lane (Brad Pitt) former UN investigator tracks down and interrogates Mossad agent Warmbrunn (Ludi Boeken). Warmbrunn tells that after many failed decisions made by the Israeli government, they decided to introduce the ‘tenth man’ in all decisions. The role of this guy is to play the devil’s advocate and give arguments against the decision of the majority. This very concept is to combat the phenomenon of groupthink.

Hence if you are a closely knit group of stakeholders or investors who have been together for some time and have similar attitudes you should assign someone from the group to play the devil’s advocate as a precaution from groupthink.

After all, your money is precious.

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