I was a big economics fan at school. Supply and demand, rational actors, natural monopolies and perfectly competitive markets – it made simple good sense to me.
It all got a bit more complicated at university. There, whacking great equations I couldn’t fathom, seemed the inadequate answer to real world problems.
Later in the world of work, thanks to my broad brush mastery of ‘the dismal science’ I had a brief, successful (and with hindsight massively inaccurate) career in forecasting the prospects for mobile phones worldwide. I concluded as many as one in ten people might have one – one day. Nostradamus eh!
This week I discovered from the clever people at McKinsey it’s no wonder I got it wrong by a factor of ten. I was guilty of anchoring, group think, saliency bias, confirmation bias and the halo effect, to name just five.
It turns out people simply cannot, and do not make ‘rational’ decisions. Even with the best data, the right experience and great wisdom, we are all doomed by the impossibility of escaping group biases. And the killer is the biggest bias of the lot is “self-interest bias” which we absolutely cannot escape, as it’s 100% built in.
What to do? The only conclusion is talk about it. When it comes to the really big choices in work and life, even the smartest person in the room will get the big ones wrong on their own.
But you can’t talk forever or you’ll succumb to groupthink or give in to loss aversion. Eric Schmidt of Google has a good motto: for a good decision you need discord… and a deadline.
Plus, I conclude, let go of your own ego, and at least let others showcase their prejudices before you give in to your own.
12 Common Biases
1) Affect Heuristic – a team has fallen in love with its own proposal.
2) Groupthink – we’re all in the same boat on this one.
3) Saliency Bias – overly influenced by analogy to something memorable that happened once before.
4) Confirmation Bias – no credible alternatives means “let’s do it!”
5) Availability Bias – time limited offers are disproportionately attractive, but if you had to make the decision again in a year’s time what information would you want first?
6) Anchoring Bias – a tendency to cling to the first number heard and judge everything else with reference to that starting point.
7) Halo Effect – the assumption that people and teams with past success will be successful again.
8) Sunk Cost Fallacy – we’ve spent a fortune already, so we may as well spend some more to get some of it back.
9) Overconfidence and Optimism Fallacies – nobody likes a pessimist.
10) Disaster Neglect – the worst that could happen is too horrible to think about – let alone consider in your plans.
11) Loss Aversion – humans naturally weigh losses more heavily than equivalent or even greater future gains.
12) Self Interest Bias – the one you can never escape on your own and the best reason to take your big decisions with other people.