Everyone's thinking is subject to bias. These biases, also called heuristics, or mental shortcuts, are the hidden forces that shape your choices. And these forces arenโt random. In fact, they are common, predictable, and easy to spot if you know what youโre looking for.
In his book Predictably Irrational: The Hidden Forces That Shape Our Decisions, Dan Ariely puts it this way:
โOur irrational behaviors are neither random nor senseless- they are systematic and predictable.
We all make the same types of mistakes over and over, because of the basic wiring of our brains.โ
โ Dan Ariely
You may believe that your decisions are bulletproof. Unfortunately, everyone, from the CEO down to the office intern, is subject to errors in thinking.
Theyโre called cognitive biases, and they shape the way we take in, process, and use information. The context of the information we get and the filters we use to consider it are as important as the information itself.
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Combating cognitive bias can improve your ROI
In a recent study, McKinsey showed that when companies worked to reduce the effects of cognitive bias, they raised ROI by at least 7%. However, these cognitive biases are hard to spot if you donโt know what youโre looking for. Take the time to ask yourself each of these 10 questions to discover if youโre falling victim to a common cognitive bias. Thereโs no downside, but the upside on spotting faulty thinking can be huge.
Hereโs a five minute checklist for detecting cognitive bias
- Check for Self-serving Bias: This is the tendency for people to protect their ego and vested interests. It might take the form of cherry-picking data to support your current opinion. You might be dismissing the views of dissenters because you donโt want to bruise your ego. Interrogate the data and assumptions that led to this decision and ask yourself, โWas anything dismissed because it didnโt agree with my vested interest (or my bossโ)?โ
- Check for the Affect Heuristic: This is the tendency for people to make a decision based on their emotional state. For instance, if you emotionally associate โinnovationโ with something positive, youโre more likely to judge a new project as being lower risk than it actually is. Interrogate your own feelings and associations with this project. Ask yourself honestly, โHave I fallen in love with this idea?โ
- Check for Groupthink: This is the tendency for decision-making groups to favor conformity with the team over making the more rational decision. They donโt want to risk being an outcast, so they go along with the herd mentality, resulting in an irrational outcome. Think through the project and ask yourself, โDid me, or anyone else on the team, disagree with the majority opinion? Was their voice heard, or was it shouted down in favor of the group?โ
- Check for the Halo Effect: This is the tendency to assume lots of ambiguous facts based on one particular point. For instance, if you find someone attractive, youโre more likely to think theyโre honest, competent, and intelligent. Look at the case studies and facts that led you to this decision. Ask yourself, โAm I assuming that because a similar approach worked for someone else (whoโs successful), that itโll work for me?โ
- Check for the Sunk-Cost Fallacy: This is the tendency for people to let past time and money costs influence the future of a project. However, future costs of a project are the only rational point of data for investors. This is the bias that leads people to throw โgood money after bad.โ Ask yourself, โIf I was the new CEO on my first day, would I still make the same decision? Or am I being over-influenced by the history of this project?โ
- Check for Overconfidence Bias: This is the tendency for people to think of their own abilities as better than they are because theyโre successful now. They tend to make every decision with the attitude that they โcanโt lose,โ because of their current success. Ask yourself, โHow skeptical am I? Did I challenge all my assumptions? Am I being overconfident because of my current success?โ
- Check for Loss Aversion: This is the tendency for people to want to avoid a loss more than they want to risk an equivalent gain. Often, youโll see this bias in people who donโt want to sell a house for less than they paid for it. Theyโd rather lose money holding out for a higher purchase price than risk getting back less than they paid. Ask yourself, โHow open to risk am I? Am I picking the safest option because itโs the right option, or the least risky?โ