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Why People Don't
Think Rationally
Babu Appat
Many of us take pride in our
ability to think clearly and
rationally at work.
However, from time to time, we
can all make subtle psychological
mistakes, and these can distort
our decisions.
So, in this slide-show, I look at how
to avoid psychological bias. (This
has nothing to do with conventional
forms of bias.)
Also in this show, I would like to explore how
to overcome two other unhelpful thinking
patterns: self-sabotage and fear of failure.
Just knowing about these things can
help you beat them.
Avoiding Psychological Bias in
Decision Making
How to Make Objective
Decisions?
Imagine that you're researching a
potential product.
You think that the market is growing, and, as
part of your research, you find information
that supports this belief.
As a result, you decide that the
product will do well, and you
launch it, backed by a major
marketing campaign.
However, the product fails.
The market hasn't expanded, so
there are fewer customers than
you expected
You can't sell enough of your
products to cover their costs, and
you make a loss.
Avoiding Psychological Bias in
Decision Making
Psychological bias can lead you to
make a wrong decision.
In this scenario, your decision
was affected by confirmation bias
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.
Confirmation bias is one of several
psychological biases that we're all
susceptible to when we make
decisions.
In this session, we'll look at
common types of bias, and we'll
outline what you can do to avoid
them
What is Psychological Bias?
Psychologists Daniel Kahneman,
Paul Slovic, and Amos Tversky
introduced the concept of
psychological bias in the early
1970s.
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.
For example, you might
subconsciously make selective
use of data, or you might feel
pressured to make a decision by
powerful colleagues.
Psychological bias is the opposite
of common sense and clear,
measured judgement.
It can lead to missed opportunities
and poor decision making.
Common Psychological Biases
Look at these five psychological
biases that are common in
business decision making
Please also look at how you can
overcome them, and thereby make
better decisions
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
A 2013 study found that
confirmation bias can affect the
way that people view statistics
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.
That makes confirmation bias a
potentially serious problem to
overcome when you need to make a
statistics-based decision
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.
Alternatively, discuss your
thoughts with others.
Surround yourself with a diverse
group of people, and don't be
afraid to listen to dissenting views
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.
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.
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
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.
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
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.
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.)
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.
Well-considered decisions

This can help you ensure that you've
made a thorough, well-considered
decision
3. Overconfidence Bias
(Complacency)

This happens when you place too
much faith in your own knowledge
and opinions.
Valuable than actual?

You may also believe that your
contribution to a decision is
more valuable than it actually is
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
Entrepreneurs'
Complacency

In a 2000 study, researchers found
that entrepreneurs are more likely to
display the overconfidence bias than
the general population.
Knowledge Limits

They can fail to spot the limits of their
knowledge, so they perceive less risk
Business Success

Some succeed in their ventures, but
many do not
How to Avoid
Overconfidence Bias?

Consider the following
questions:
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?
●
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
4. Gambler's Fallacy

With the gambler's fallacy, you
expect past events to influence
the future
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
Head V Tail

The longer the run of heads you
get, the stronger your belief can
be that things will change the
next time
Fifty-Fifty
However, in this example, the odds
are always 50/50.
The gambler's fallacy can be
dangerous in a business
environment
Suppose

For instance, imagine that you're an
investment analyst in a highly
volatile market
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
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
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
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
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
Political, Economic, Social and
Technological analysis

(Tools such as PEST Analysis can
help here.)
5. Fundamental
Attribution Error

This is the tendency to blame others
when things go wrong, instead of
looking objectively at the situation
Personality flaw

In particular, you may blame or
judge someone based on a
stereotype or a perceived
personality flaw
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
Actor-observed Bias

Fundamental attribution error is
the opposite of actor-observed
bias, which happens when place
blame on external events rather
than yourself
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
How to Avoid Fundamental
Attribution Error?

It's essential to look at situations, and
the people involved in them,
non-judgmentally.
How to Avoid Fundamental
Attribution Error?

Use empathy and (if appropriate)
cultural intelligence, to understand
why people behave in the ways that
they do.
Emotional Intelligence

Also, build emotional intelligence,
so that you can reflect accurately
on your own behaviour
Note:

It's hard to spot psychological bias in
ourselves, because it often comes from
subconscious thinking
Consult
For this reason, it can often be
unwise to make major decisions
without consulting other people
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
Key Points

Psychological bias is the
tendency to make decisions or
take action in an unknowingly
irrational way
Objectivity
To overcome it, look for ways to
introduce objectivity into your
decision making, and allow more
time for it
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
●
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.
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
THANK
YOU
babuappat@gmail.com

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

  • 1. Why People Don't Think Rationally Babu Appat
  • 2. Many of us take pride in our ability to think clearly and rationally at work.
  • 3. However, from time to time, we can all make subtle psychological mistakes, and these can distort our decisions.
  • 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. Also in this show, I would like to explore how to overcome two other unhelpful thinking patterns: self-sabotage and fear of failure.
  • 6. Just knowing about these things can help you beat them.
  • 7. Avoiding Psychological Bias in Decision Making
  • 8. How to Make Objective Decisions?
  • 9. Imagine that you're researching a potential product.
  • 10. You think that the market is growing, and, as part of your research, you find information that supports this belief.
  • 11. As a result, you decide that the product will do well, and you launch it, backed by a major marketing campaign.
  • 12. However, the product fails. The market hasn't expanded, so there are fewer customers than you expected
  • 13. You can't sell enough of your products to cover their costs, and you make a loss.
  • 14. Avoiding Psychological Bias in Decision Making Psychological bias can lead you to make a wrong decision.
  • 15. In this scenario, your decision was affected by confirmation bias
  • 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. Confirmation bias is one of several psychological biases that we're all susceptible to when we make decisions.
  • 18. In this session, we'll look at common types of bias, and we'll outline what you can do to avoid them
  • 20. Psychologists Daniel Kahneman, Paul Slovic, and Amos Tversky introduced the concept of psychological bias in the early 1970s.
  • 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. For example, you might subconsciously make selective use of data, or you might feel pressured to make a decision by powerful colleagues.
  • 23. Psychological bias is the opposite of common sense and clear, measured judgement.
  • 24. It can lead to missed opportunities and poor decision making.
  • 26. Look at these five psychological biases that are common in business decision making
  • 27. Please also look at how you can overcome them, and thereby make better decisions
  • 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. A 2013 study found that confirmation bias can affect the way that people view statistics
  • 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. That makes confirmation bias a potentially serious problem to overcome when you need to make a statistics-based decision
  • 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.
  • 34. Surround yourself with a diverse group of people, and don't be afraid to listen to dissenting views
  • 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. 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. 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. 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. 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. 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. 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. 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. Well-considered decisions This can help you ensure that you've made a thorough, well-considered decision
  • 44. 3. Overconfidence Bias (Complacency) This happens when you place too much faith in your own knowledge and opinions.
  • 45. Valuable than actual? You may also believe that your contribution to a decision is more valuable than it actually is
  • 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. Entrepreneurs' Complacency In a 2000 study, researchers found that entrepreneurs are more likely to display the overconfidence bias than the general population.
  • 48. Knowledge Limits They can fail to spot the limits of their knowledge, so they perceive less risk
  • 49. Business Success Some succeed in their ventures, but many do not
  • 50. How to Avoid Overconfidence Bias? Consider the following questions:
  • 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. 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. 4. Gambler's Fallacy With the gambler's fallacy, you expect past events to influence the future
  • 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. 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. Fifty-Fifty However, in this example, the odds are always 50/50. The gambler's fallacy can be dangerous in a business environment
  • 57. Suppose For instance, imagine that you're an investment analyst in a highly volatile market
  • 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. 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. 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. 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. 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. Political, Economic, Social and Technological analysis (Tools such as PEST Analysis can help here.)
  • 64. 5. Fundamental Attribution Error This is the tendency to blame others when things go wrong, instead of looking objectively at the situation
  • 65. Personality flaw In particular, you may blame or judge someone based on a stereotype or a perceived personality flaw
  • 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. 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. 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. How to Avoid Fundamental Attribution Error? It's essential to look at situations, and the people involved in them, non-judgmentally.
  • 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. Emotional Intelligence Also, build emotional intelligence, so that you can reflect accurately on your own behaviour
  • 72. Note: It's hard to spot psychological bias in ourselves, because it often comes from subconscious thinking
  • 73. Consult For this reason, it can often be unwise to make major decisions without consulting other people
  • 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. Key Points Psychological bias is the tendency to make decisions or take action in an unknowingly irrational way
  • 76. Objectivity To overcome it, look for ways to introduce objectivity into your decision making, and allow more time for it
  • 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. 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. 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