500 startups cognitive bias in decision making - ganes kesari - nov 2021 - final
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What are the most common cognitive biases that impact leaders? How can early-stage startups lay a foundation for data-driven decisions? In this fireside chat for 500 Startups, I addressed startup founders on how to champion good data stewardship, embed it in product development, and ensure organizational ROI from data. The session was conducted on November 10th, 2021.
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500 startups cognitive bias in decision making - ganes kesari - nov 2021 - final
- 1. Cognitive Biases in Decision Making Ganes Kesari 500 Startups Webinar November 10, 2021
- 2. 2 LET’S START WITH A FUN EXERCISE.. Source: Derek Muller, Veritasium Youtube Here’s a three number sequence Can you figure out the rule? Propose your own set of three numbers, and I’ll respond with “Yes, follows the rule” or “No, Doesn’t” Type in your set of three numbers in the chat window! 2, 4, 8, …
- 4. 4 We make a lot more decisions than we realize
- 5. 5 POOR DECISION MAKING IS THE BIGGEST CHALLENGE FOR STARTUPS 92% Startup failure rate in a study1 1: https://integral-entrepreneurship.org/wp-content/uploads/2016/07/Startup-Genome-Premature-Scaling.pdf 2: https://www.pniconsulting.com/decision-making-debiasing 68% Companies pass up good opportunities2 74% Failure due to premature scaling 60% Executives believe bad decisions are common2
- 6. 6
- 7. 7 HOW OUR DECISION MAKING HAS EVOLVED FROM PREHISTORIC TIMES “A father and his son are involved in a horrific car crash and the man died at the scene. The child was rushed into the operating theatre at the hospital. The surgeon walked into the room, but then declared: “I can’t operate on this boy, he’s my son”! Imagine our hunter-gatherer ancestors huddled around a campfire..1 1: https://hbr.org/2019/07/what-ai-driven-decision-making-looks-like
- 8. 8 “Our 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” - Dan Ariely Quote from the book, Predictably Irrational
- 9. 9 Our decisions suffer from these 3 major biases
- 10. 10 #1 CONFIRMATION BIAS Collecting, filtering, and interpreting information to confirm our pre-conceived notions “There’s no chance that the iPhone is going to get any significant market share. No chance.” - Steve Ballmer Basing startup marketing strategy on what one thinks might work best
- 11. 11 #2 SUNK-COST FALLACY Making decisions based on how much investment one has already made, rather than on future returns “We didn’t do anything wrong, but somehow we lost” Clinging on to bleeding customer accounts / low-performing products - Stephen Elop, Former Nokia CEO
- 12. 12 #3 IKEA EFFECT Placing too much value on the things we’ve done, often while discounting other people’s smart ideas “We built this homegrown product over 5 years and it’s sure to beat the competition” Founder’s ideas overshadowing other contributions in the product roadmap
- 13. 13 Poll #1 Which of these 3 biases have you noticed the most around you? • Confirmation Bias • Sunk-Cost Fallacy • IKEA Effect
- 14. 14 The science of making the best organizational decisions
- 16. 16 #1 DATA SCIENCE The discipline that delivers value from data by helping surface actionable insights Prepare good quality data for analysis Identify insights with pertinent analytics Enable consumption of insights with Information design
- 17. 17 #2 MANAGERIAL SCIENCE The discipline that helps solve organizational problems by optimal management decisions Enable adoption of actionable solutions and frameworks Institutionalize processes for excellence Use leadership to manage change
- 18. 18 #3 SOCIAL SCIENCE The discipline that helps understand human behavior and how it’s shaped by technology Understand target audience behavior Decipher interpersonal dynamics Understand human-tech interaction
- 19. 19 HERE’S HOW THE PROBLEM OF CUSTOMER ATTRITION IS SOLVED …through heuristics …with decision intelligence
- 20. 20 “ When it comes to fighting biases, I’m much more optimistic about organizations than individuals - organizations can put systems in place to help them” - Daniel Kahneman (Thinking Fast and Slow)
- 21. 21 Here’s how you can leverage Decision Intelligence to fight these biases
- 22. 22 #1 USING DATA SCIENCE TO TACKLE CONFIRMATION BIAS 1. Look for data you’ve ignored or avoided 2. Scout for unusual insights to disprove hypotheses 3. Convert insights into stories that galvanize action Basing startup marketing strategy on what one thinks might work best
- 23. 23 #2 USING MANAGERIAL SCIENCE TO TACKLE SUNK-COST FALLACY 1. Start with strategic clarity on outcomes 2. Pick right metrics & present as actionable frameworks 3. Tackle dominant logic to manage change Clinging on to bleeding customer accounts / low-performing products
- 24. 24 #3 USING SOCIAL SCIENCE TO TACKLE IKEA EFFECT 1. Tap into the power of collective intelligence 2. Build an open environment that values diversity 3. Foster a culture of curiosity and experimentation Founder’s ideas overshadowing other contributions in the product roadmap
- 25. 25 QUICK RECAP • It’s common.. • ..but flawed • History & heuristics • Data Science • Managerial Science • Social Science Decision Intelligence • Data-insights-stories • Goals-metrics-change • Crowds-diversity-curiosity Fighting biases with DI • Confirmation bias • Sunk-cost fallacy • IKEA effect The 3 major biases How we make decisions?
- 26. 26 Poll #2 How often have you realized that biases limit the decisions you make? • Never • Very rarely • Some times • Many times
- 27. 27 THINK OTHER PEOPLE ARE MORE SUSCEPTIBLE TO THESE BIASES THAN YOU? “It is easier to recognize other people’s mistakes than our own” - Daniel Kahneman …there’s a name for it – ‘Blindspot bias’!
- 28. 28 “We imagine ourselves sitting in the driver's seat, with ultimate control over our decisions. But, alas, this is just how we want to view ourselves and not the reality” - Dan Ariely Source: Quote rephrased from Predictably Irrational
- 29. 29 THANK YOU! @kesaritweets in/gkesari gramener.com gkesari.substack.com Subscribe to my newsletter Thanks to S Anand, Sravani G, and Justin A for contributing to and reviewing drafts of this deck.