Behavioral Study of the Challenger Disaster

Executive Summary

Advancements in behavioral psychology have shown that individuals exhibit behavioral biases and bounded rationality that can detrimentally impact the decision-making process. In the groundbreaking work by Kahneman & Tversky (1979) on Prospect Theory, they cast a shadow over traditional economic theory that assumes individuals will make the most logical choices to maximize the potential outcome. They have further shown that individuals tend to have a two-part thought-process, System 1 (fast, instinctive and emotional) and System 2 (slower, deliberative and logical). The tendency by individuals to exhibit behavioral biases, bounded rationality and a two-system thought mode, that can be in conflict at times, will cloud the judgement of many, so that decisions will be made that do not offer the optimal outcome.

Many of the poor decisions by individuals are often benign and trivial. However, consideration must be given to our innate ability to derive at an appropriate decision when lives are on the line. This essay will discuss and analyze the decision-making process that led up to the launch of the Space Shuttle Challenger on January 28, 1986, that ultimately ended in disaster.

We will find that certain behavioral biases as pointed out by Kahneman & Tversky (1979), Thaler & Sunstein (2009) and Ariely (2009) may have distorted the decision-making process that resulted in an unacceptable outcome.

Challenger Disaster

The events leading up to the fateful Challenger launch have been well documented so we will briefly highlight the salient points as it relates to our analysis. On the evening prior to launch, the manufacturer of the shuttles rocket boosters raised concern about the integrity of the O-ring that was responsible for sealing the joints between the various parts of the rocket boosters. Given the “wear and tear” of the boosters due to their reusability, along with external temperatures that were cooler than optimal, there was a discussion about possibly postponing the launch.

The decision was made to proceed as planned with catastrophic results. We will explore the possible behavioral biases that may have contributed to the poor decision. These biases include (1) Loss Aversion Bias, (2) Outcome Bias, (3) Overconfidence Bias, and (4) Confirmation Bias.

Loss Aversion Bias

Kahneman & Tversky (1979) have shown that individuals tend to exhibit Loss Aversion tendencies. Loss Aversion states that an individual preference in avoiding loss has a greater mental impact than an equivalent gain. In fact, theory states that the pain from a loss creates more mental anguish than the pleasure of a gain by a factor of 2-to-1.

At the time of the accident, NASA had been under budgetary constraints and were concerned about losing future funding from Congress. Given the high profile nature of the launches, NASA was also under pressure to adhere to an overly ambitious launch schedule and delays or postponements carried with it considerable reputational risk. Lastly, the launch was scheduled prior to the 1986 State of the Union speech to be delivered by President Reagan.

Understanding the cognitive notion of Loss Aversion, perhaps the pain of potential loss (funding by Congress and public reputation) outweighed the benefit of postponing the launch due to safety reasons. When faced with these potential losses, perhaps the decision-makers responsible for the safety of the flight crew understated the potential dangers that were highlighted by the engineers.

Outcome Bias

Outcome bias is exhibited when individuals over-weight the outcome of previous events during the decision-making process. When Outcome Bias is present, the decision maker will discount the factors that led to a previously successful event, instead relying heavily on the outcome of that event.

Prior to the Challenger disaster, there had been many NASA successes. In fact, there had never been an inflight fatality prior to January 28, 1986 (although NASA did lose Gus Grissom, Ed White and Roger Chaffee to a launchpad fire in 1967). If the decision to proceed with the launch was affect by the successes of prior missions, the presence of Outcome Bias in this case was a fatal error.

Overconfidence Bias

Overconfidence Bias occurs when an individual believes that their judgement and decisions are of higher quality than warranted. This could lead to cognitive errors when determining probabilities and outcomes.

Through the decision to discount the concerns of the engineers about a mission critical component of the shuttle (the O-rings), the decision makers may have succumbed to one of the many ways Overconfidence Bias can distort the thought process. Overconfidence Bias will misrepresent one’s actual past performance and inflate self-assurance. It may be quite possible that it had altered the decision-makers reference point as well. Considering this component of the spacecraft was one of many mission critical components, overconfidence may have skewed the decision-makers refence point that ultimately led them to underweight the importance of the O-ring.

Confirmation Bias

According to the theory of Confirmation Bias, individuals will have a tendency to interpret the facts around an event in a way that confirms their existing beliefs. Individuals have been shown to overweight evidence that support their underlying belief system while discounting evidence that contradicts it. Confirmation bias within a group setting will often lead to “group think” in which each member is influenced by the group consensus. An illusion of unanimity will satisfy the Confirmation Bias heuristic of each member of the group and potentially blind them to underlying problems. This Confirmation heuristic and group think will also give rise to the “spotlight effect” in which a lone dissenter within the group suppresses an underlying concern due to the pressure of group unanimity.

Of all the potential behavioral biases that led to the poor decision-making around the launch of the Challenger spacecraft, it is my opinion that this particular bias may have been most detrimental. During the events that led up to the decision to launch, the manufacturer of the O-rings had previously taken a stance that the launch should be delayed. Pressures from the other individuals within the group ultimately swayed the manufacturer to alter their stance and they eventually sided with the consensus view to proceed with the mission.

The Culture

Evidence of the behavioral biases mentioned in this analysis have been well documented, thus a prudent perspective on ways to avoid illogical decision-making should be attempted. Perhaps a starting point should be examining the corporate culture within NASA. Rossow (n.d.) alludes to the practice of censoring opposing views and punishing whistle-blowers. The backdrop of this culture is indicative of unproductive brainstorming and can act as an ignitor of the many behavioral biases one should seek to avoid. Block (2011) notes that in any productive group setting there should be higher standards of engagement. He states the meetings should encourage and open and transparent purpose with all attendees on a level playing field. He further notes that there should be clear expectations about participation towards the greatest outcome and a platform that encourages openness and doubt.

Perhaps there is a way to incorporate what Thaler & Sunstein (2009) refer to as libertarian paternalism. One could attempt to develop a nudge that would not impede on the freewill of choice by the decision-makers (go/no-go to launch), yet steer the decision-makers down a path that will more thoroughly account for the risks involved in the decision by overcoming behavioral biases.

The Nudge

Taylor (2017) comments on the notion of “obligation to dissent”. Many leaders in business have adopted the concept of nominating an individual with the expected role to build a case for dissenting against the majority view. This may have proven beneficial during the final hours of discussion during the decision to proceed with the launch of the Challenger.

By obligating an individual the role of dissention, it will cast doubt over the decision-making process, thus offering a buffer to combat the Outcome and Overconfidence biases. It could prove beneficial in assisting the group contend with Loss Aversion Bias by shifting the reference point. If one could alter the value function by shifting the reference point from a successful launch (gain) vs. losing funding and credibility (loss) to a scenario that empathizes losing funding and credibility (tolerable loss) vs. the loss of human life (bigger loss), then perhaps better decisions will be expected.

Lastly, a mandatory dissenter will assist in eliminating Confirmation Bias and the need for group unanimity (group think) because under the new structure, group unanimity will be an impossible achievement. Having a member(s) with the obligation to dissent will also alter the spotlight effect. If the mandatory dissenter does not present the opposing view, the spotlight effect will work in favor of the decision-making process. This could also open the door for those that would have normally had opposing opinions but are reluctant to voice their views to relay those concerns to the individual that is obligated to dissent.

Conclusion

As the saying goes, hindsight is 20/20 and it is difficult to analyze the decision-making process ex-post. That said, the existence of behavioral biases and bounded rationality have been proven to alter the decision-making process and must be considered as potential culprits in the decision to procced with the launch of the Challenger. To combat the various behavioral biases that may have played a role in steering those in charge of the process must be considered.

The suggestion of this author would be to embrace the notion of libertarian paternalism and offer a nudge in the form of obligation to dissent in an attempt to reach better decisions in the future in an effort to avoid a repeat of the tragic events of the Space Shuttle Challenger.

Joseph S. Kalinowski, CFA

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