© ESADE

Humans are categorisation machines. We constantly take in vast amounts of data from a chaotic and unpredictable world then simplify and structure it. To make sense of our senses, we divide the information they provide us into categories.

Our brains have evolved to apply this kind of heuristic because it speeds up decision making – and it can also be the difference between life and death; for example, the ability to instantly differentiate a snake from a stick in a dark forest would have been useful to our ancestors.

Unfortunately, we’re too good at categorisations. We often see groupings where none exist, or we make other categorisation errors that lead to poor decision making.

As the data revolution transforms the business world, leaders must be aware of their own categorisation instincts. Esade Associate Professor Bart de Langhe has explored ways to assess – and avoid – the dangers of categorical thinking.

What defines a valuable categorisation?

According to de Langhe and his research partner Philip Fernbach of the Leeds School of Business at the University of Colorado, a valuable categorisation fulfils two criteria: validity and usefulness.

Validity means asking: Is this a real category? One cannot arbitrarily divide a homogenous group – the divisions must be made in a meaningful way. Usefulness means asking: Does creating these categories serve a purpose?

Invalid categories lead to errors. A high-profile example of this is the Myers-Briggs Type Indicator (MBTI), used to inform HR decisions at a reported 80% of Fortune 500 companies. It is easy to see why recruiters are tempted by what the MBTI claims to provide: a way to distil the infinitely variable scope of human personality into four distinct categories and 16 unique types. It seemingly removes the need for intuition, offering a measurable way to match people to the roles that suit them best.