Editorial
Executives pride themselves on being analytical. They build business cases, design strategies and make decisions grounded in logic and data. Yet one of the most persistent and costly errors I have seen across nearly two decades as a CHRO and executive coach is not a flaw in judgment, but a flaw in assumption.
Too many leaders navigate their organizations as if they were rational, meritocratic systems, when in reality they are profoundly human environments. This gap between how executives think decisions are made and the reality fuels confusion, disappointment and political missteps. And it reflects a cognitive blind spot described in behavioral economics and organizational psychology as the rational actor fallacy: the mistaken belief that people behave in accordance with logic, incentives and the organization’s best interests. The idea is both comforting and deeply misleading.
The Costly Mistake of Assuming Rationality
The rational actor assumption has long underpinned classical economics, which teaches us that individuals seek to maximize utility, respond predictably to incentives, and make decisions based on information and self-interest. But entire fields have emerged to dismantle this idea.
Behavioral economics, pioneered by Daniel Kahneman, Amos Tversky and later expanded by Richard Thaler, demonstrates that humans deviate systematically from rational behavior. Biases, heuristics, loss aversion, sunk cost, emotional triggers and identity threats shape how decisions are actually made.
Organizational sociology echoes this reality. Jeffrey Pfeffer argued that organizations function as political systems, not neutral marketplaces of logic. Henry Mintzberg's research found informal networks, unspoken norms and subjective interpretations heavily influence executive decision-making, not objective analysis.
Despite these findings, executives cling to the belief that rationality governs workplace behavior. It makes the world feel predictable, and allows them to believe that “good ideas win.” But the costs of this belief include misread intentions, misplaced trust, failed influence strategies and strategic blind spots.
This pattern appears again and again in coaching conversations. A client presents a well-reasoned plan and cannot understand why a colleague or superior resists:
“Why won’t they support the obvious solution when my business case is airtight?”
The answer often lies not in logic but in incentives, fears, loyalties or identity dynamics.
What Actually Drives Executive Behavior
Even highly intelligent and capable leaders make decisions driven by forces far from rational. Research across behavioral science, psychology and organizational theory shows that leaders regularly optimize for factors such as:
- Status protection and prestige.
- Fear of loss, exposure or being wrong.
- Loyalty to past relationships or long-standing allies.
- Ego and identity maintenance.
- Political alliances and unspoken obligations.
- Short-term optics over long-term value.
- Conflict avoidance.
- Preference for the familiar over the objectively superior.
- Power dynamics and territory protection.
These influences can outweigh even the most meticulously constructed arguments. A clear illustration comes from a former CMO client of mine. Tasked with selecting a new digital marketing platform, she ran a typical process by scheduling demos, co-creating a scoring grid with the CEO and building a robust business case for the leading vendor. The recommendation was clear.
Yet on the eve of the decision, the CEO overrode her and insisted on choosing a smaller, less capable vendor. She was baffled and pushed back but assumed (rationally) that there must be factors she had missed. Months later, she learned the CEO was close friends with the founder of that inferior platform.
This was not a failure of analysis. It was a failure to recognize the non-rational forces at play. She was solving for business logic; he was solving for personal loyalty. Once she understood the real incentive, the decision suddenly made sense.
Why High Performers Fall Hardest for the Rationality Trap
The leaders most likely to fall for the rationality assumption are the ones who operate most rationally themselves. High performers tend to:
- Prepare thoroughly.
- Make decisions based on evidence.
- Act in alignment with company values.
- Prioritize the organization’s interests.
- Separate emotion from analysis.
- Expect effort and ethics to be rewarded.
In other words, they project their own style of decision-making onto others. This unconscious and well-intentioned projection is a setup for confusion.
When they encounter behavior that violates their expectations, they conclude:
- “I didn’t fully understand the business problem,” or
- “I did not communicate clearly,” or
- “My analysis is flawed.”
The issue, however, is their worldview, not their logic. They are navigating the organization as if everyone shares the same assumptions about rationality, fairness, and merit. When those assumptions collapse, high performers often take it personally or catastrophize the disconnect. In reality, what they are running up against is not incompetence but human complexity.
Executives Underestimate How Much Organizations Run on Non-Rational Forces
Organizational life is shaped by far more than strategy, KPIs or incentives. Mintzberg warns that organizations are not machines but social organisms. Pfeffer argues that the myth of meritocracy blinds leaders to the real drivers of influence. And Kahneman notes that even when people believe they are acting rationally, they are often rationalizing, not reasoning.
The result is that leaders misdiagnose disagreements as intellectual when they are actually emotional, political or identity-driven. This is why the question, “Why don’t they see the obvious?” is almost always the wrong one. A far better question is “What problem is this person actually trying to solve?” Because it may not be the problem your business case addresses or the one they will ever articulate aloud.
Questions You Should Ask When Rationality Seems Absent
When executives encounter resistance that logic alone cannot explain, they should move from persuasion to diagnosis. The following questions help illuminate what’s truly shaping the other party’s behavior:
- Incentives:
What rewards, pressures or risks (formal or informal) are shaping their stance? - Identity and Ego:
How might this proposal / project / initiative threaten their sense of competence, control or influence? - Risk Perception:
Are they more concerned with avoiding loss than capturing gain? - Alliances and Loyalty:
Whom are they trying to protect, appease or stay aligned with? - Power Dynamics:
Does this decision shift ownership, visibility or credit in ways they find uncomfortable? - Status Implications:
Would supporting this idea elevate a rival or diminish their standing? - Cognitive Biases:
Are confirmation bias or sunk cost fallacy distorting their view? - Emotional Triggers:
Is fear of conflict, failure or exposure playing an unspoken role?
These questions move leaders from naïve rationality to pragmatic clarity. They help executives understand the system, not just the symptom.
Seeing the System Clearly
The most effective leaders are not the ones who assume rationality; they are the ones who understand its limits. They recognize that organizations are human ecosystems full of biases, histories, loyalties, fears and ambitions. By discarding the rational actor fallacy, executives see more clearly, anticipate more accurately, and influence more effectively.
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Importantly, they stop being surprised by behavior they cannot explain and start navigating with the sophistication that complex human systems require.
Editor's Note: What other dynamics are shaping our workplaces?
- Workplace Politics vs. AI — No matter how sophisticated your AI tools are, they can't overcome the toxic power struggles, favoritism and biased decision-making that permeate organizations.
- How to Create a Conflict-Resilient Work Culture — Conflicts are on the rise at organizations around the world. Here are some tips to build a resilient and respectful work environment for all employees.
- A VUCA Framework for Leadership Clarity in Uncertain Times — Internal misalignment causes companies to fall into reactive cycles, unable to execute effectively, with negative impacts on their profitability.
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