More Biases that Affect Decision Making

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All final decisions are made in a state of mind that is not going to last. ~Marcel Proust

In the previous post I introduced the concept of how common and not-so-common cognitive biases affect our business thinking and decision-making. Bias #1: Gambler’s Fallacy is not the only one you need to watch for. There are many other bias-rooted productivity dragons you’ll have to slay on your business journey.

Here are some examples of common faults in our thinking (originally discussed by Nikki as posted on Listverse):

BIAS #2: Self-Fulfilling Prophecy

When we don’t believe we can be successful, we stop putting in the effort required to build a business. It takes more than discipline to develop and market your ideas day after day. And when you stop creating new things and/or stop marketing (or stop marketing as much as you should) guess what happens? Your business stagnates. That’s an example of a self-fulfilling prophecy in action. Your behaviour (lack of taking action daily to move your business forward) creates the results that confirm your belief.

BIAS #3: The Halo Effect

You hate what you see in the mirror and it kind of spills over into your day and your business. But you’re disciplined and determined so you get on with it. Then you meet a really good looking person at a conference you’re both attending. You don’t know a thing about his or her abilities or circumstances.

But, because you hate the way you look and are blinded by the attractiveness of this stranger, you automatically believe they’re so much smarter than you, their business is booming and their life is perfect. That’s the halo effect in action. (Nasty one, isn’t it?)

BIAS #4: Herd Mentality

In simple terms, herd mentality is a form of peer pressure. How else can you explain why some fads go viral? Few want to be seen as “uncool” or “out of the loop”. Herd mentality is why so many lame business ideas rack up millions in sales. (But it’s not the only reason… the other is marketing. Great marketing always overcomes poor product. Don’t learn that lesson the hard way.)

BIAS #5: Reactance

This is a bias you’ll see played on in salesletters quite frequently. Tell people they can’t have something and they’ll want it all the more. Not because the product is good or because they need it. But rather because the fact they can’t have it makes them crazy for it. It’s rebellious teenage thinking perhaps, but it sure moves a lot of mediocre merchandise.

BIAS #6: Hyperbolic Discounting

Another bias commonly made use of in salesletters is hyperbolic discounting — the tendency for people to prefer a smaller, immediate payoff over a larger, delayed payoff.

We don’t live in a new society; we live in a now society. Even when the reward is demonstrably greater, as can be seen with savings vehicles that generate compound interest for example, it’s very hard for people to give up spending today instead of saving for tomorrow.

It’s the same reason people want you to buy into the lie that you can immediately have the business and life of your dreams working just four hours a week. We’re conditioned from birth for that addictive hit of instant gratification. And they know when that isn’t your experience, despite following all the “tried and true” advice, you’ll blame yourself, not the liar who sold you on this.

BIAS #7: Escalation of Commitment

This is the bias responsible for our continuing to hold onto what by all accounts is an unsuccessful business, business deal or project. When we should cut our losses, we don’t. Instead, this bias compels us to invest even more time, energy and money into the commitment hoping it will be just what is needed to turn a losing proposition around.

It isn’t. So don’t.

BIAS #8: Placebo Effect

The essence of the placebo effect is: when we expect something to work well or have a favourable outcome, we believe and report that it has even when it doesn’t. Most commonly, this experience is found in medicine but it also applies equally to business.

By the way, the term “placebo” is used when the outcomes are considered favorable; when the outcomes are negative or harmful, the term to use is “nocebo”. (I just recently learned about the “nocebo” effect in brain injury rehab so I thought I’d share it with you.)

BIAS #9: Confirmation Bias

This bias has us making decisions based on false information. The confirmation bias is our tendency to look for information that confirms what we already believe, to the exclusion of all other available information. In other words, we only look at the part of the story that tells us we’re on target.

You can see how dangerous this can be to the future of your business, right? When you fail to consider all the relevant facts, the logic that should support your decision-making is automatically faulty.

BIAS #10: Illusion of Control

When you believe you can control or at least influence outcomes you clearly have no influence over, you are caught in the illusion of control. Gamblers and risk takers are much better off understanding the laws of probability whether your playground is the casino or your office.

Did you know that when playing craps, people will throw the dice hard when they need a high number and soft when they need a low number? In reality, the strength of the throw will not guarantee a certain outcome, but the gambler believes they can control the number they roll. (And, not surprisingly, when the number they hoped for comes up, it’s even more difficult for them to accept the nature of the throw had nothing to do with the outcome.)

Like the afore-mentioned gamblers, we hold fast to our illusions when, in reality, we’d be much further ahead simply by replacing them with facts.

BIAS #11: Planning Fallacy

Virtually everyone suffers from this bias which is the tendency to underestimate the time needed to complete tasks. The planning fallacy actually stems from another error, The Optimism Bias, which is the tendency for individuals to be overly positive about the outcome of planned actions.

People are more susceptible to the planning fallacy when the task is something they have never done before. The reason for this is because we estimate based on past experiences. That’s why keeping a detailed time log of the work you’re doing on and in your business is always a good investment.

Hofstadter’s Law: It always takes longer than you expect, is absolutely true so doubling your estimate for tasks you’ve done before is not all that unreasonable. And when you have no past history to draw on, triple or quadruple it.

(You may think I’m being pessimistic but there is a phenomenon called “realistic pessimism” where depressed or overly pessimistic people more accurately predict task completion estimates.)

BIAS #12: Self-Serving Bias

Self-serving bias occurs when you attribute positive outcomes to internal factors and negative outcomes to external ones. A good example of this is revenue — when your business is running in the black, you’ll attribute it to your being really smart or creative. When sales are non-existent, and you’re running in the red, you’ll attribute it to a bad economy or a slow market.

People commonly take credit easily for successes but refuse to accept responsibility for failures.

Interesting Fact: when considering the outcomes of others, we attribute causes exactly the opposite as we do to ourselves. When we learn that our competitor’s sales are in the stratosphere, we attribute it to an external cause such as luck or the association with a big name guru. And if their sales are tanking, we tell ourselves the competitor is inherently stupid or lazy. This is known as the fundamental attribution error.

In reality, it is our own actions that dictate our outcomes. Hence the importance of training yourself to be personally accountable and accept responsibility. Yes, I know it isn’t always pleasant or easy. But it is necessary. Get over it.

BIAS #13: Cryptomnesia

When memory is mistaken for imagination you may find yourself guilty of cryptomnesia — also known as inadvertent plagiarism. In such a case, you recall producing an idea or thought when, in reality, you did not. Instead you are recalling an idea or thought you were exposed to elsewhere.

False memory doesn’t just apply to thoughts and ideas. It can also affect your identity and relationships. You might claim cryptomnesia but most will see you not as ill or suffering from cognitive bias but rather as a person lacking professional ethics. (You remember my telling you I found the list of biases that started me thinking about this posted by Nikki at Listverse, right?)

BIAS #14: Bias Blind Spot

Not surprisingly, one of the most common cognitive biases is that which we apply to ourselves. Most people believe they are less biased than others, which may or may not be true. Because of our own blind spot, we can hardly be objective about such an evaluation.

As Nikki points out “Amazingly, there is actually a bias to explain this bias. The Better-Than-Average Bias is the tendency for people to inaccurately rate themselves as better than the average person on socially desirable skills or positive traits. Coincidentally, they also rate themselves as lower than average on undesirable traits.”

With respect to our businesses, this blind spot can be crippling. If we are feeling less than secure in our professional abilities, we may believe we are less competent than others in our industry. That fuels our fear, which drives our actions, which ultimately lead to the results that may cause us to conclude that is the truth about our abilities. Before you know it, you’re caught in the middle of a self-fulfilling prophecy.

How do we fight back? By understanding the nature of cognitive bias and making an effort in more conscious thinking. This will be one of the best investments you can make in improving your productivity. Now that you know about it, my question to you is: “What are you going to do with this key information“?