Be it massive industrial projects or simple personal decisions – good, quality decisions are essential for success. We have seen the value and utility models helps in understanding how a rational (or real) decision-maker operates.
Biases are one of the big blockers against rational decision making. Let’s see some of the most common types.
Optimism bias
It refers to an individual’s anticipation for positive future outcomes than what could occur in reality. The decision-maker gets the overconfidence that prevents her from thinking about a negative outcome. It is also sometimes called the illusion of invulnerability. While for individuals, this may bring a few benefits (happier life), for critical decision making, say for a business, this is a major cause of alarm. Imagine you launching a product ignoring your competition.
Status quo bias
The preference for the current state of affairs is a type of decision making based on what comes naturally rather than what is important or what the evidence suggests. In politics, conservative ideologies, as their name suggests, favour the status quo, often thwarting progressive changes to society.
Confirmation bias
Confirmation bias ignores contradictory evidence and is desperate to deliver what they are committed to. We all have it to certain degrees, and it is so difficult to get rid of completely.
Sunk cost bias
It happens you continue progressing a project long after you should have abandoned it. And the reason? Well, I have spent a lot already. Call it emotional attachment, overoptimism, or just faith, businesses and individuals throwing good money after bad happens all the time.
Not invented here (NIH) bias
Typical for well-established corporates – hesitance to adopt outsider technologies, and the insistence to develop own, while it is sufficient to replicate existing solutions. A notable exception who reaped rich rewards is Microsoft Corporation.
Anchoring
We have seen anchoring before. This happens when the decision-maker depends heavily on the initial piece of information. Discount sales in shops are a good example. Rather than analysing the merit of that particular (final) price tag, the buyer gets hooked to the anchor, i.e. the original (often inflated) higher price.
Groupthink
It’s about supporting the consensus and ignoring divergent alternatives. Such a tendency could originate from our tendency to harmonise with the rest (especially the superiors), the overconfidence in the judgement of the crowd (argumentum ad populum), or merely the feel of comfort for sharing the blame, in case the decision fails!
The Intelligence Trap
Beware of this automatic assumption that smarter, reactive, quick answers mean an effective thinking process has taken place.
