Decision fatigue. Tired people making bad decisions. Casinos thrive on it. Long hours and free alcoholic beverages combine to impair gamblers’ risk assessments and decision making. Just another reason why “the house always wins.” No surprise there. But did you know that decision fatigue may be the reason your last loan application was rejected? It seems that loan officers, like gamblers, should take breaks in order to maintain high levels of performance.
The Department of Psychology at Cambridge University (UK) recently published the results of a study of over 25,000 loan (restructuring) applications reviewed by 30 loan officers at a large bank over the period of a month. According to the lead author, Simone Schnall, the study found that, “Credit officers were more willing to make the difficult decision of granting a customer more lenient loan repayment terms in the morning, but by midday they showed decision fatigue and were less likely to agree to a loan restructuring request.”
That’s right. Customers had a better chance of having their loan applications approved during the earlier morning hours or just after lunch. Outside of those periods, decision-fatigued loan officers tended to “default” to the decision requiring less cognitive effort: Rejecting the loan.
And you thought the bank had been worried about your marginal debt service ratio!
Decision fatigue has been studied before; what made Professor Schnall’s study stand out was its link to the economic consequences caused by it. The Professor and her colleagues estimated that the bank could have collected approximately $500,000 in loan repayments if all loan decisions were made in the early morning. That’s interesting math but so is the “math” left uncommented: Each loan officer was reviewing 4-5 applications per hour! Decision fatigue was predictable, if not inevitable. (For better results, the bank might also consider hiring more loan officers.)
Of course, the true takeaway offered by this Cambridge University study is this:
There is clear evidence that regular breaks during working hours are important for maintaining good performance.
This lesson applies as much, possibly more, to cash constrained startups, where employees wear multiple hats and often work incredibly long hours. Bad decisions can result. I’ve seen many an investor pitch or projection model with seemingly obvious errors, mistakes that would have been spotted had time permitted. Haste does in fact make waste.
So, work on those investor presentations first thing in the morning and remember something I learned back in my Keurig days: Coffee breaks are good for business.
Peter has spent the past twenty-plus years as an acting/consulting CFO for a number of small businesses in a wide range of industries. Peter’s prior experience is that of a serial entrepreneur, managing various start-up and turnaround projects. He is a co-founder of Keurig.