Why People Don't Think Rationally

Babu Appat

Many of us take pride in our ability to think clearly and rationally at work.

However, from time to time, we can all make subtle psychological mistakes, and these can distort our decisions.

So, in this slide-show, I look at how to avoid psychological bias. (This has nothing to do with conventional forms of bias.)

Also in this show, I would like to explore how to overcome two other unhelpful thinking patterns: self-sabotage and fear of failure.

Just knowing about these things can help you beat them.

Avoiding Psychological Bias in Decision Making

How to Make Objective Decisions?

Imagine that you're researching a potential product.

You think that the market is growing, and, as part of your research, you find information that supports this belief.

As a result, you decide that the product will do well, and you launch it, backed by a major marketing campaign.

However, the product fails.
The market hasn't expanded, so there are fewer customers than you expected

You can't sell enough of your products to cover their costs, and you make a loss.

Avoiding Psychological Bias in Decision Making
Psychological bias can lead you to make a wrong decision.

In this scenario, your decision was affected by confirmation bias

With this, you interpret market information in a way that confirms your preconceptions - instead of seeing it objectively - and you make wrong decisions as a result.

Confirmation bias is one of several psychological biases that we're all susceptible to when we make decisions.

In this session, we'll look at common types of bias, and we'll outline what you can do to avoid them

What is Psychological Bias?

Psychologists Daniel Kahneman, Paul Slovic, and Amos Tversky introduced the concept of psychological bias in the early 1970s.

They published their findings in their 1982 book, "Judgement Under Uncertainty."
They explained that psychological bias - also known as cognitive bias - is the tendency to make decisions or take action in an illogical way.

For example, you might subconsciously make selective use of data, or you might feel pressured to make a decision by powerful colleagues.

Psychological bias is the opposite of common sense and clear, measured judgement.

It can lead to missed opportunities and poor decision making.

Common Psychological Biases

Look at these five psychological biases that are common in business decision making

Please also look at how you can overcome them, and thereby make better decisions

1. Confirmation Bias

As you saw above, confirmation bias happens when you look for information that supports your existing beliefs, and reject data that go against what you believe. This can lead you to make biased decisions, because you don't factor in all of the relevant information

A 2013 study found that confirmation bias can affect the way that people view statistics

Its authors report that people have a tendency to infer information from statistics that supports their existing beliefs, even when the data support an opposing view.

That makes confirmation bias a potentially serious problem to overcome when you need to make a statistics-based decision

How to Avoid
Confirmation Bias?

Look for ways to challenge what you think you see. Seek out information from a range of sources, and use an approach to consider situations from multiple perspectives.

Alternatively, discuss your thoughts with others.

Surround yourself with a diverse group of people, and don't be afraid to listen to dissenting views

You can also seek out people and information that challenge your opinions, or assign someone on your team to play "devil's advocate" for major decisions.

2. Anchoring

This bias is the tendency to jump to conclusions - that is, to base your final judgement on information gained early on in the decision-making process.

First Impression Bias

Think of this as a "first impression" bias. Once you form an initial picture of a situation, it can be hard to see other possibilities

How to Avoid Anchoring

Anchoring may happen if you feel under pressure to make a quick decision, or if you have a general tendency to act hastily.

Decision-making history

So, to avoid it, reflect on your decision-making history, and think about whether you've rushed to judgement in the past

Decision-making Under Pressure

Then, make time to make decisions slowly, and be ready to ask for longer if you feel under pressure to make a quick decision.

Pushing against your interests?

(If someone is pressing aggressively for a decision, this can be a sign that the thing they're pushing for is against your best interests.)

Ladder of interference

Read an article on the Ladder of Inference to find out more about the stages of thinking that people tend to go through when they make good decisions.

Well-considered decisions

This can help you ensure that you've made a thorough, well-considered decision

3. Overconfidence Bias (Complacency)

This happens when you place too much faith in your own knowledge and opinions.

Valuable than actual?

You may also believe that your contribution to a decision is more valuable than it actually is

Your Actual Ability

You might combine this bias with anchoring, meaning that you act on hunches, because you have an unrealistic view of your own decision-making ability

Entrepreneurs' Complacency

In a 2000 study, researchers found that entrepreneurs are more likely to display the overconfidence bias than the general population.

Knowledge Limits

They can fail to spot the limits of their knowledge, so they perceive less risk

Business Success

Some succeed in their ventures, but many do not

How to Avoid Overconfidence Bias?

Consider the following questions:

Ask unto Yourself

What sources of information do you tend to rely on when you make decisions?

Are these fact-based, or do you rely on hunches?

Who else is involved in gathering information?

Has information been gathered systematically?

Objective Data

If you suspect that you might be depending on potentially unreliable information, think about what you can do to gather more objective data

4. Gambler's Fallacy

With the gambler's fallacy, you expect past events to influence the future

Coin Toss

A classic example is a coin toss. If you toss a coin and get heads seven times consecutively, you might intuitively assume that there's a higher chance that you'll toss tails the eighth time

Head V Tail

The longer the run of heads you get, the stronger your belief can be that things will change the next time

Fifty-Fifty

However, in this example, the odds are always 50/50.The gambler's fallacy can be dangerous in a business environment

Suppose

For instance, imagine that you're an investment analyst in a highly volatile market

Success....Success....Success

Your four previous investments did well, and you plan to make a new, much larger one, because you see a pattern of success

Unpredictable it's often

In fact, outcomes are highly uncertain. The number of successes that you've had previously has only a small bearing on future outcomes

How to Avoid
Gambler's Fallacy?

A 2008 study reported that the gambler's fallacy was less likely to happen when decision makers avoided looking at decisions chronologically

Data Analysis

So, to avoid gambler's fallacy, make sure that you look at trends from a number of angles. Drill deep into data using effective, scientific data analysis tools

Economic circumstances

If you notice patterns in behaviour or product success - for example, if several projects fail unexpectedly - look for trends in your environment, such as changed customer preferences or changes in wider economic circumstances

Political, Economic, Social and Technological analysis

(Tools such as PEST Analysis can help here.)

5. Fundamental Attribution Error

This is the tendency to blame others when things go wrong, instead of looking objectively at the situation

Personality flaw

In particular, you may blame or judge someone based on a stereotype or a perceived personality flaw

For example,

if you're in a car accident, and the other driver is at fault, you're more likely to assume that (s)he is a bad driver than you are to consider whether bad weather played a role

Actor-observed Bias

Fundamental attribution error is the opposite of actor-observed bias, which happens when place blame on external events rather than yourself

Reaction Time

For example, if you have a car accident that's your fault, you're more likely to blame the brakes or the wet road than your reaction time

How to Avoid Fundamental Attribution Error?

It's essential to look at situations, and the people involved in them, non-judgmentally.

How to Avoid Fundamental Attribution Error?

Use empathy and (if appropriate) cultural intelligence, to understand why people behave in the ways that they do.

Emotional Intelligence

Also, build emotional intelligence, so that you can reflect accurately on your own behaviour

Note:

It's hard to spot psychological bias in ourselves, because it often comes from subconscious thinking

Consult

For this reason, it can often be unwise to make major decisions without consulting other people

Decisions- Group process

Researchers Daniel Kahneman, Dan Lovallo, and Olivier Sibony reflected on this in a 2011 Harvard Business Review article, in which they suggest that you should make important decisions as part of a group process

Key Points

Psychological bias is the tendency to make decisions or take action in an unknowingly irrational way

Objectivity

To overcome it, look for ways to introduce objectivity into your decision making, and allow more time for it

Tips

Use tools that help you assess background information systematically,

surround yourself with people who will challenge your opinions,

listen carefully and empathetically to their views - even when they tell you something you don't want to hear

A Final Note

When you think clearly and objectively, you give yourself the best chance to explore all of the information and options available to you.

Meet Your Goals

You make better decisions, and you set yourself up to meet your goals. You'll also increase your self-esteem, and feel more positive about your future

THANK YOU

babuappat@gmail.com