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.
🏁 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.
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