The Bias Toward Action: When Investing is Worse Than Doing Nothing

"Don't just do something, stand there!" This inversion of the common phrase might sound like a joke, but it captures a profound truth about decision-making in business.

The Dangerous Dance of Action and Optimism

Picture a casino floor on a Saturday night. As losses mount, players increase their bets, convinced they can turn things around. This same psychology plays out in boardrooms worldwide, where executives, facing pressure to perform, often double down on risky initiatives rather than accept defeat or maintain the status quo.

The problem isn't action itself—it's our tendency to act without proper consideration of uncertainties and alternatives, driven by an often unrealistic optimism about our ability to control outcomes.

Why Smart Leaders Make This Mistake

The root causes of action-oriented bias lie in a perfect storm of psychological and organizational factors:

1. Illusion of Control: We systematically overestimate our ability to influence outcomes, even in situations largely governed by chance.
2. Optimism Bias: We tend to believe we're less likely to experience negative events than others, leading to unrealistic risk assessments.
3. Organizational Pressure: The corporate world generally rewards action over inaction, even when patience might be the wiser choice.

The WeWork Saga: A Case Study in Overconfidence

WeWork's meteoric rise and fall provides a textbook example of action-oriented bias combined with excessive optimism. The company's aggressive expansion, fueled by its charismatic founder's vision, saw it opening new locations at a breakneck pace despite mounting losses.

The mantra was "grow at all costs," with leadership convinced they could overcome fundamental economic challenges through sheer force of will and execution. This led to a spectacular unraveling in 2019, when the company's IPO filing revealed the stark reality behind the optimistic growth narrative.

Contrasting Approaches: The Fast and the Patient

Scenario A (Poor Practice): A retail chain, seeing initial success in urban markets, rapidly opens 50 new stores in suburban locations without adequate market research. The action-oriented CEO pushes forward despite warnings about different consumer behaviors in suburban areas. Within two years, 60% of the new locations close.

Scenario B (Best Practice): Amazon's patient approach to profitability in its early years. Despite pressure to show immediate returns, Jeff Bezos maintained a disciplined, step-by-step expansion strategy, famously telling shareholders that long-term value would trump short-term profits. This patience allowed Amazon to build sustainable competitive advantages rather than chase quick wins.

The Psychology of "Doing Something"

Our bias toward action is deeply rooted in human psychology. Three key mechanisms drive this behavior:

1. Fear of Regret: We tend to feel more regret about negative outcomes from inaction than from action, even when the results are identical.
2. Social Pressure: The need to appear decisive and in control often pushes leaders toward premature action.
3. Complexity Bias: We often prefer complex, active solutions to simple, passive ones, even when the latter might be more effective.

Breaking the Action Addiction: A Framework for Better Decisions

1. Embrace Uncertainty

Start by acknowledging what you don't know. As Charlie Munger says, "It's not a competency if you don't know the edge of it."

2. Create Decision Checkpoints

Before taking action, ask:

• What would happen if we did nothing?
• What are we giving up by acting now?
• How reversible is this decision?
• What are the second-order consequences?

3. Implement Pre-Mortems

Before major decisions, conduct a "pre-mortem." Imagine it's a year later and the initiative has failed. What went wrong? This exercise helps surface potential problems before they occur.

The Power of Patience

Warren Buffett's investment philosophy provides a powerful counterpoint to action bias. His approach, famously described as "lethargy bordering on sloth," has produced extraordinary long-term results. As he notes, "The stock market is designed to transfer money from the active to the patient."

The same principle applies to business decisions. Often, the best course of action is to:

• Watch and wait
• Gather more information
• Let time reveal better options
• Allow competitors to make mistakes first

Creating a Culture of Thoughtful Decision-Making

Organizations need to actively counteract the bias toward action by:

1. Rewarding Quality Over Speed Create metrics that measure decision quality, not just decision speed.
2. Encouraging Devil's Advocates Formally assign team members to argue against proposed actions.
3. Separating Discussion from Decision Hold separate meetings for exploring options and making decisions to ensure adequate reflection time.

The Hidden Cost of Action Bias

The most insidious aspect of action bias is that it often feels right in the moment. Taking action provides an immediate sense of progress and control. However, this emotional satisfaction can mask poor decision-making.

Consider these questions before taking action:

• Is this action truly necessary?
• Are we acting to solve a problem or to feel better?
• What's the cost of waiting for more information?
• Are we confusing motion with progress?

Conclusion

The challenge isn't to eliminate action—it's to ensure our actions are thoughtful and necessary rather than reactive and premature. As leaders, we need to create environments where patience is valued alongside decisiveness, where uncertainty is acknowledged rather than suppressed, and where the courage to wait is recognized as much as the courage to act.

Remember: Sometimes the best action is no action at all. Or as Charlie Munger puts it, "It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent."