Why people don't think rationally, Five types of Psychological Biases


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Decision making is an art. Dexterous decision making requires polished skills. Psychological Bias are the common problem makers, which prevents effective decision making. Let us examine what are the common psychological biases and how to overcome these problem makers. Better decisions are required for business success and better life.

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Why people don't think rationally, Five types of Psychological Biases

  1. 1. Why People Don't Think Rationally Babu Appat
  2. 2. Many of us take pride in our ability to think clearly and rationally at work.
  3. 3. However, from time to time, we can all make subtle psychological mistakes, and these can distort our decisions.
  4. 4. So, in this slide-show, I look at how to avoid psychological bias. (This has nothing to do with conventional forms of bias.)
  5. 5. Also in this show, I would like to explore how to overcome two other unhelpful thinking patterns: self-sabotage and fear of failure.
  6. 6. Just knowing about these things can help you beat them.
  7. 7. Avoiding Psychological Bias in Decision Making
  8. 8. How to Make Objective Decisions?
  9. 9. Imagine that you're researching a potential product.
  10. 10. You think that the market is growing, and, as part of your research, you find information that supports this belief.
  11. 11. As a result, you decide that the product will do well, and you launch it, backed by a major marketing campaign.
  12. 12. However, the product fails. The market hasn't expanded, so there are fewer customers than you expected
  13. 13. You can't sell enough of your products to cover their costs, and you make a loss.
  14. 14. Avoiding Psychological Bias in Decision Making Psychological bias can lead you to make a wrong decision.
  15. 15. In this scenario, your decision was affected by confirmation bias
  16. 16. With this, you interpret market information in a way that confirms your preconceptions - instead of seeing it objectively - and you make wrong decisions as a result.
  17. 17. Confirmation bias is one of several psychological biases that we're all susceptible to when we make decisions.
  18. 18. In this session, we'll look at common types of bias, and we'll outline what you can do to avoid them
  19. 19. What is Psychological Bias?
  20. 20. Psychologists Daniel Kahneman, Paul Slovic, and Amos Tversky introduced the concept of psychological bias in the early 1970s.
  21. 21. They published their findings in their 1982 book, "Judgement Under Uncertainty." They explained that psychological bias also known as cognitive bias - is the tendency to make decisions or take action in an illogical way.
  22. 22. For example, you might subconsciously make selective use of data, or you might feel pressured to make a decision by powerful colleagues.
  23. 23. Psychological bias is the opposite of common sense and clear, measured judgement.
  24. 24. It can lead to missed opportunities and poor decision making.
  25. 25. Common Psychological Biases
  26. 26. Look at these five psychological biases that are common in business decision making
  27. 27. Please also look at how you can overcome them, and thereby make better decisions
  28. 28. 1. Confirmation Bias As you saw above, confirmation bias happens when you look for information that supports your existing beliefs, and reject data that go against what you believe. This can lead you to make biased decisions, because you don't factor in all of the relevant information
  29. 29. A 2013 study found that confirmation bias can affect the way that people view statistics
  30. 30. Its authors report that people have a tendency to infer information from statistics that supports their existing beliefs, even when the data support an opposing view.
  31. 31. That makes confirmation bias a potentially serious problem to overcome when you need to make a statistics-based decision
  32. 32. How to Avoid Confirmation Bias? Look for ways to challenge what you think you see. Seek out information from a range of sources, and use an approach to consider situations from multiple perspectives.
  33. 33. Alternatively, discuss your thoughts with others.
  34. 34. Surround yourself with a diverse group of people, and don't be afraid to listen to dissenting views
  35. 35. You can also seek out people and information that challenge your opinions, or assign someone on your team to play "devil's advocate" for major decisions.
  36. 36. 2. Anchoring This bias is the tendency to jump to conclusions - that is, to base your final judgement on information gained early on in the decisionmaking process.
  37. 37. First Impression Bias Think of this as a "first impression" bias. Once you form an initial picture of a situation, it can be hard to see other possibilities
  38. 38. How to Avoid Anchoring Anchoring may happen if you feel under pressure to make a quick decision, or if you have a general tendency to act hastily.
  39. 39. Decision-making history So, to avoid it, reflect on your decision-making history, and think about whether you've rushed to judgement in the past
  40. 40. Decision-making Under Pressure Then, make time to make decisions slowly, and be ready to ask for longer if you feel under pressure to make a quick decision.
  41. 41. Pushing against your interests? (If someone is pressing aggressively for a decision, this can be a sign that the thing they're pushing for is against your best interests.)
  42. 42. Ladder of interference Read an article on the Ladder of Inference to find out more about the stages of thinking that people tend to go through when they make good decisions.
  43. 43. Well-considered decisions This can help you ensure that you've made a thorough, well-considered decision
  44. 44. 3. Overconfidence Bias (Complacency) This happens when you place too much faith in your own knowledge and opinions.
  45. 45. Valuable than actual? You may also believe that your contribution to a decision is more valuable than it actually is
  46. 46. Your Actual Ability You might combine this bias with anchoring, meaning that you act on hunches, because you have an unrealistic view of your own decision-making ability
  47. 47. Entrepreneurs' Complacency In a 2000 study, researchers found that entrepreneurs are more likely to display the overconfidence bias than the general population.
  48. 48. Knowledge Limits They can fail to spot the limits of their knowledge, so they perceive less risk
  49. 49. Business Success Some succeed in their ventures, but many do not
  50. 50. How to Avoid Overconfidence Bias? Consider the following questions:
  51. 51. Ask unto Yourself What sources of information do you tend to rely on when you make decisions? ● Are these fact-based, or do you rely on hunches? ● Who else is involved in gathering information? ● Has information been gathered systematically? ●
  52. 52. Objective Data If you suspect that you might be depending on potentially unreliable information, think about what you can do to gather more objective data
  53. 53. 4. Gambler's Fallacy With the gambler's fallacy, you expect past events to influence the future
  54. 54. Coin Toss A classic example is a coin toss. If you toss a coin and get heads seven times consecutively, you might intuitively assume that there's a higher chance that you'll toss tails the eighth time
  55. 55. Head V Tail The longer the run of heads you get, the stronger your belief can be that things will change the next time
  56. 56. Fifty-Fifty However, in this example, the odds are always 50/50. The gambler's fallacy can be dangerous in a business environment
  57. 57. Suppose For instance, imagine that you're an investment analyst in a highly volatile market
  58. 58. Success....Success....Success Your four previous investments did well, and you plan to make a new, much larger one, because you see a pattern of success
  59. 59. Unpredictable it's often In fact, outcomes are highly uncertain. The number of successes that you've had previously has only a small bearing on future outcomes
  60. 60. How to Avoid Gambler's Fallacy? A 2008 study reported that the gambler's fallacy was less likely to happen when decision makers avoided looking at decisions chronologically
  61. 61. Data Analysis So, to avoid gambler's fallacy, make sure that you look at trends from a number of angles. Drill deep into data using effective, scientific data analysis tools
  62. 62. Economic circumstances If you notice patterns in behaviour or product success - for example, if several projects fail unexpectedly - look for trends in your environment, such as changed customer preferences or changes in wider economic circumstances
  63. 63. Political, Economic, Social and Technological analysis (Tools such as PEST Analysis can help here.)
  64. 64. 5. Fundamental Attribution Error This is the tendency to blame others when things go wrong, instead of looking objectively at the situation
  65. 65. Personality flaw In particular, you may blame or judge someone based on a stereotype or a perceived personality flaw
  66. 66. For example, if you're in a car accident, and the other driver is at fault, you're more likely to assume that (s)he is a bad driver than you are to consider whether bad weather played a role
  67. 67. Actor-observed Bias Fundamental attribution error is the opposite of actor-observed bias, which happens when place blame on external events rather than yourself
  68. 68. Reaction Time For example, if you have a car accident that's your fault, you're more likely to blame the brakes or the wet road than your reaction time
  69. 69. How to Avoid Fundamental Attribution Error? It's essential to look at situations, and the people involved in them, non-judgmentally.
  70. 70. How to Avoid Fundamental Attribution Error? Use empathy and (if appropriate) cultural intelligence, to understand why people behave in the ways that they do.
  71. 71. Emotional Intelligence Also, build emotional intelligence, so that you can reflect accurately on your own behaviour
  72. 72. Note: It's hard to spot psychological bias in ourselves, because it often comes from subconscious thinking
  73. 73. Consult For this reason, it can often be unwise to make major decisions without consulting other people
  74. 74. Decisions- Group process Researchers Daniel Kahneman, Dan Lovallo, and Olivier Sibony reflected on this in a 2011 Harvard Business Review article, in which they suggest that you should make important decisions as part of a group process
  75. 75. Key Points Psychological bias is the tendency to make decisions or take action in an unknowingly irrational way
  76. 76. Objectivity To overcome it, look for ways to introduce objectivity into your decision making, and allow more time for it
  77. 77. Tips Use tools that help you assess background information systematically, ● surround yourself with people who will challenge your opinions, ● listen carefully and empathetically to their views - even when they tell you something you don't want to hear ●
  78. 78. A Final Note When you think clearly and objectively, you give yourself the best chance to explore all of the information and options available to you.
  79. 79. Meet Your Goals You make better decisions, and you set yourself up to meet your goals. You'll also increase your self-esteem, and feel more positive about your future
  80. 80. THANK YOU babuappat@gmail.com