How’s your thinking?

Until the 1980’s, decision science held as an assumption that people were rational actors. 

However, since then, research has identified the irrational behavior that impacts our decision-making. 

Human beings are, as Dan Ariely describes, predictably irrational. 

There are a number of cognitive biases that influence our decision-making. 

Yale Professor, Dr. Woo-Kyoung Ahn, says that these flaws in our thinking are a side effect of our highly evolved cognitive systems. 

For most of human history, our brains dealt with what we could see and touch. Statistics and other abstract notions are not something our brains have millenia of experience with. 

Cognitive biases can have disastrous effects on business decisions and can keep you from thinking clearly about your own career progression.

Photo by Juan Rumimpunu

See if any of these sounds familiar.

1. Confirmation bias

This type of bias describes our underlying tendency to notice, focus on, and give greater credence to evidence that fits with our existing beliefs. The danger of this bias is that there can be stronger evidence that supports a conclusion, but our own beliefs distort our ability to sort through the evidence objectively.

This is one reason why diversity is so important on our teams and in our organizations. We need other people to help bring in other perspectives.

Our decisions cannot be fully informed if we are only focusing on evidence that confirms our assumptions. It can cause us to overlook pivotal information both in our careers and in everyday life.

One way to overcome confirmation bias is to regularly review your beliefs. Maybe you need to rethink long-held beliefs. Another strategy is to gather facts from a broad base that will bring in more objectivity. Having a coach is one way to leverage a third party view.

2. Effort Justification

Behavioral economist, Dan Ariely, famously coined the term, “Ikea effect,” to describe ascribing greater value to an outcome if you put effort into achieving it. If you build a piece of furniture from Ikea, it may be of inferior quality to another piece of furniture that you didn’t assemble with your own hands, but in your eyes, it holds more value because of your sweat equity. 

This can cloud your thinking when you face a career move if you built up a capability, a team, or an organization, or if as a business owner you have invested in building something whose time has come to an end. You may be better off moving on, but leaving something you built yourself can feel personal due to this cognitive bias.

3. Present Bias (hyperbolic discounting)

This bias shows up when you make choices regarding the future that are inconsistent with choices you make in the moment. You choose smaller, immediate rewards, rather than larger, later rewards.

In one study, participants were asked what food choices they wanted for the coming week: fruit or chocolate. Seventy-four percent of participants chose fruit, whereas on the actual day, 70% actually chose the chocolate. 

When not in the moment, you make choices that are better for you. This is a strong case for creating your future. You are better positioned to create who you want to be now, rather than trying to decide in the moment.

4. Escalation of commitment (sunk cost fallacy)

Escalation of commitment, or sunk cost fallacy, is where you justify increased investment in a decision, based on the cumulative prior investment, despite new evidence suggesting that the decision was probably wrong.

I see this in people who have committed to a job, and when factors such as an unsupportive boss or a toxic environment set in, there is a reluctance to leave the job.

This bias keeps you from doing what is in your best interest, which is cutting your losses and moving on. 

5. Loss aversion

This is the tendency to avoid losses over achieving equivalent gains. This is because your emotions are involved and you feel the pain of losses twice as intensively as the equivalent pleasure of gain. 

This often shows up with financial decisions, as a decision to invest or buy things is filtered through the lens of a fear of losing money.

Loss aversion can be avoided by re-framing the question of loss when making decisions, identifying worst-case scenarios, and rationalizing those decisions.

Which of these cognitive biases have you experienced? How will you keep them from hindering your ability to make sound decisions moving forward?

I help individuals be at choice in life and in business. If you have a decision ahead of you, I’d love to have a conversation. 

Love,

Audrey