I recently finished reading the book “Billion Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years” by Paul B. Carroll and Chunka Mui. The book is a series of case studies of massive, public business failures: collapsed mergers, missed opportunities, failed rollups, wrong technology bets and the like. What makes it interesting reading is the focus on the psychology and decision-making behind the failures. Confirmation bias, the anchoring effect, the innovator’s dilemma are mental and structural glitches that can hurt us in all parts of our life — here shown spectacularly in the realm of business. So, for the sake of a reminder (for myself, and anyone else who’ll benefit) here are my favorite quotes from Carroll and Mui’s work.

1. It isn’t enough to know that an idea is probably flawed. There has to be a method, agreed on ahead of time, for discussing possible problems and making sure they are given due weight. Otherwise, once a strategy starts to build momentum it will steamroll any possible objections.

2. As [Andy] Grove [CEO of Intel] has said, “Bad companies are destroyed by crisis. Good companies survive them. Great companies are improved by them.”

3. While business seems to outsiders to be rational, it is, in fact, very emotional and, as a result, subject to irrational behavior. Strategy formulation in particular is as much a social process as it is an analytical one.

4. Business isn’t physics. Business isn’t about finding the exact right answer, but rather is about avoiding the wrong answers and then executing as hard and as well as possible the answers that might be right.

5. A McKinsey study of 124 mergers found that only 30 percent generated synergies on the revenue side that were even close to what the acquirer had predicted.

6. The tendency in any bidding war is to go just a bit higher, but that can be disastrous.

7. As our friend John Perry Barlow has observed, information yearns to be free. In the age of the Internet, bloggers, and twenty-four-hour cable news channels, his observation will probably apply to your strategy as well: Someone will tell the world what you’re doing.

8. Psychology and anthropology show that taking a rigorous approach [to business strategy] is extremely difficult because of these natural tendencies:

• People home in on an answer prematurely, long before they evaluate all information.
• People have trouble being objective about many kinds of information because they aren’t set up well to deal with abstractions.
• Once people start moving toward an answer, they look to confirm that their answer is right, rather than hold open the possibility that they’re wrong.
• People conform to the wishes of a group, especially if there is a strong person in the leadership role, rather than raise objections that test ideas.
• People also don’t learn as much as they could from their mistakes, because we humans typically suffer from overconfidence and have elaborate defense mechanisms to explain away our failings; sharp people (the kind entrusted with setting corporate strategies, or so we hope) appear to be even less likely to learn from mistakes or to acknowledge their errors.

9. Psychological studies show that it’s hard – physically hard – for people to avoid reaching conclusions before evaluating all the evidence.

10. One problem is what psychologists call the anchoring bias. If you ask someone to estimate anything whose amount is between, say, one and one hundred units, but first tell them a randomly chosen number, that number will greatly influence the estimate. Even though the random number and the estimate have nothing to do with each other, a low random number will produce low estimates. A high random number will produce high estimates.

The anchoring bias poses particular problems in setting strategy because we subconsciously tend to work from whatever spreadsheet or other document we’re presented with. We tend to tinker rather than question whether the ideas behind the document are even worth considering.

11. What psychologists call the bias towards survivorship means we remember what happened; we don’t remember what didn’t happen.

Well, duh, right? But the fact we don’t remember what didn’t happen is actually a profound problem in how we think. The faithful troop to Lourdes every year to pray for miracle cures, even though a study by astronomer and TV personality Carl Sagan found that the rate of cure is actually somewhat lower for those who make the trek than those who stay away. We may read about those who pray to Mary and survive, not those who pray to Mary and die.

Beyond these quotes that stuck out to me, the book is loaded with telling business stories and anecdotes — it’s a history lesson as much as it’s anything else. I recommend the full (quick) read.