Are you really aware?
The Dirty Dozen
Shortcuts of the mind that save time and energy and are here with us to stay. Getting familiar with them is a good start.
1. Excessive Optimism
Overestimating the likelihood of positive events and underestimating the likelihood of negative events.
2. Overconfidence
Overestimating our abilities relative to others and our ability to affect future outcomes. Taking credit for positive past outcomes while dismissing chance.
3. Confirmation Bias
Placing extra value on supportive evidence of our belief and too little on evidence that contradicts it. Failing to search impartially for evidence.
4. Anchoring and Insufficient Adjustment
Rooting our decisions in an initial value and failing to adjust our thinking away from that value.
5. Groupthink
Striving for consensus at the expense of a realistic appraisal of alternative courses of action.
6. Egocentrism
Focusing too narrowly on our own perspective and losing the ability to imagine how others will be affected. We assume that everyone has access to the same information we do.
7. Loss Aversion
Feeling losses more than gains and becoming more risk-averse than a rational calculation would recommend.
8. Sunk-Cost Fallacy
Continuing a behavior based on previous investment of resources regardless if current costs outweigh the benefits.
9. Escalation of Commitment
Investing additional resources in a losing proposition because of effort, money, and time already invested.
10. Controllability Bias
Thinking we can control outcomes more than is actually the case causing us to miscalculate risk.
11. Status Quo Bias
Preferring the status quo in the absence of pressure to change it.
12. Present Bias
Valuing immediate rewards very highly and undervaluing long-term gains.
đ Conclusion
In a study of entrepreneurs and business leaders, biases helped entrepreneurs take unnecessary risks to move forward, but they hindered business leaders managing large organizations.
References
(2015). Leaders as Decision Architects. Harvard Business Review.
(1997). Differences between entrepreneurs and managers in large organizations: Biases and heuristics in strategic decision-making. Journal of Business Venturing.
(2016). Decision-Making and Cognitive Biases. Encyclopedia of Mental Health.
I have seen the effects of these all too well, too many times. I sit in meetings year after year and think, here we go again. An egocentric organization is maddening for those who can see the other perspectives.
@goingsteady23 I understand this all too well. When youâve invested a lot of time and money into something, itâs difficult to let it go, even when itâs failing. Sometimes I think itâs ego. You want to make it work somehow instead of taking the failure. But the more you hang on, the more you lose.
The escalation of commitment is a hard one to face head-on. This goes for business and in investing, it's like averaging into your position because you're down so much. Humans don't want to be wrong, but the reality is that we are not perfect and never will be.
It's easy to know the math of when you should sell something, but hard to bring yourself to do it when you're down 30% on an investment. In business, this could be if you spent $2,000 on Google ads for a new product you developed and nobody is buying. You want to figure out a way to change it up, but the fact is you should probably just shoot it behind the barn, and make a new product since nobody likes it.
Well thought out and helpful look at how our personal bias affects our business decisions. Not always a problem, but it really can be a problem. We need to think clearly.
We all have biases. It is very important to understand the different types to see how they appear in the decision-making process, especially when making personal or business decisions. It can be so hard to know what the mind is doing at any given time, but time and again, the value of unbiased thought is rewarded.Â
Biases affect everyday life, as well as business. Some of the things that I noticed working in my industry for so long, include a kind of elitism. This is the way of thinking a certain person or a certain group of people don't "belong" in this type of work. As an African-American female, I've been on the receiving end of that biased way of thinking more than you can imagine. Racism and sexism come into play at the same time and it's twice as hard to overcome. One of the keys to combating this is communication, as much as possible. Whether or not it gets anywhere, depends on the people in charge and how willing people are to accept change. That's not always easy; it's much easier for people to remain quiet and "accept the way things are." The only way to get away from bias and that way of thinking is to speak out and be willing to work for change.
I can definitely see how these biases would negatively effect anyone's outcome, especially within entrepreneurial realm. I am currently in the process of starting my own business and I have been very cautious of how I make my decisions and have been looking for ways to improve so this discussion is very helpful to me . Sometimes we don't understand how our actions can truly effect us so it is very essential to be aware of every decision you make.
Understanding how thinking works goes a long way towards making better decisions.
About Author