Outsmart your own biases

Purpose

Humans are riddled with thinking biases. We rely on two different cognitive systems for decision making. System 1 thinking relies on intuition, whereas System 2 uses rational, deliberate reasoning. Unfortunately, both systems are imperfect and wrought with thinking biases that can lead to poor decision making. Soll, Milkman, and Payne, in their 2015 article, provide an assortment of methods to help managers identify and overcome some of the most common decision-making traps.

Research

The article, published in the Harvard Business Review, is based on a review of “the latest research on the psychology of judgment and decision-making.” The Harvard Business Review is not a peer-reviewed journal but is a high-quality outlet for researchers to connect their work to entrepreneurs and managers.

Summary

We’re cognitive misers—we don’t like to spend our mental energy entertaining uncertainties. It’s easier to seek closure, so we do.

Thinking biases stem from excessive reliance on intuition, defective reasoning, or both. When making decisions, people like to focus on a single possible future, a single objective, and/or a single option in isolation. When this narrow thinking translates to a compelling story in our head, intuition tells us that we’re ready to make our decision. According to the authors, instead of settling for quick, intuitive decisions, we will be better served by broadening our decision-making approach to three very different thinking tasks: thinking about the future, thinking about objectives, and thinking about options.

Thinking about the future

Nearly everyone thinks too narrowly about possible outcomes.

A common thinking bias is when we fail to consider enough possible future outcomes when making our decisions. We imagine one best guess scenario of how the future will play out and stop there.

Because we are usually overconfident in our projections of the future, the authors suggest it is important to assume more risk and uncertainty when considering outcomes by using the following four methods.

1. Make three estimates: If you need to estimate some future scenario (the success of a new employee, the revenue of a new product, etc.), instead of relying on either a single estimate (e.g., we’ll sell 5,000 units in the first month), or even a range (e.g., we’ll sell between 4,000 and 6,000 units in the first month), make a high and low estimate and then a medium estimate. The high and low estimates should be unlikely but possible. You will find that the medium estimate will usually fall closest to reality.
2. Think twice: A similar technique is to think up two forecasts for a future scenario and then take the average of the two. The trick is to make the first estimate, then let it sit for a while. Go to lunch, read a book, or watch cat videos for a bit. Then, once you’ve created some psychological distance, come up with an original second estimate (without getting anchored by your first). When you then average the two estimates, you should have a more accurate forecast.
3. Use premortems: Postmortems are often used to sleuth out the cause of a failure (e.g., a rocket explosion or a failed product launch). Premortems attempt to preempt the failure in the first place. To use premortems (also known as “prospective hindsight”), imagine all the possible ways your project could fail in the future. Then, come up with possible causes of each of those failures and how you can take action today to prevent them.
4. Take an outside view: No matter how carefully you’ve devised your plan, it is likely to be overly optimistic. To balance this optimism, take a view of your project from the outside. Pretend that you are an objective outside investor, consultant, or analyst. What uncomfortable truths could you tell yourself about the project or initiative?

Thinking about objectives

When you make a decision, you’re trying to achieve some specific outcome—an objective. Say you want to increase sales for your startup. Is the objective an increase in overall sales, an increase for a new product, or an increase in a certain market segment, for instance?

To avoid thinking biases, as early as possible in decision making, consider as many objectives as possible. Similar to brainstorming, it is better to first generate lots of possibilities and only later eliminate the less compelling ones.

To drum up more potential objectives, the authors suggest using the following techniques:

1. Seek advice: Outline objectives on your own first. Then, seek out others for additional ideas. If possible, have them make their own independent lists of objectives and then talk them through. Play with each others’ ideas to come up with even more potential objectives to consider.
2. Cycle through your objectives: Finding a solution that achieves all your objectives at once can be both overwhelming and impossible. Instead, consider solutions to each objective individually. Then, consider how some of the solutions could address multiple objectives or how other objectives could be modified or combined.

Thinking about options

Although you need a critical mass of options to make sound decisions, you also need to find strong contenders—at least two but ideally three to five.

People rarely consider more than one option at a time. We might ask, “Do we open a plant in Brazil or don’t we?” Instead, we should be asking if it is even a good idea to open a plant at all. Only if the answer is yes do we then ask what countries might be reasonable locations.

Humans have a built-in cognitive rigidity that gets amplified by stress, time pressure, and other stressors. This causes us to eliminate options and simplify our decisions to either a yes or no. Instead of yes-no framing, the authors suggest the following techniques for evaluating your options.

1. Use joint evaluation: Avoid evaluating single options in isolation, such as whether to open a plant in Brazil or not. Compare multiple options against each other and look at the opportunity cost¹ of choosing one over the other.
2. Try the “vanishing options” test: Once you feel you have a solid option, instead of moving forward immediately, temporarily take that option off the table and ask yourself, “What else could I do?” This may trigger ideas for additional options that you can then compare against your frontrunner.

Fighting motivated bias

All these cognitive biases—narrow thinking about the future, about objectives, and about options—are said to be “motivated” when driven by an intense psychological need, such as a strong emotional attachment or investment. Motivated biases are especially difficult to overcome.

To understand motivated bias, let’s look at two examples. Imagine you are attending an auction, actively bidding on a beautiful piece of art. If you’ve developed an emotional attachment to that piece, the bidding may encourage you to over pay.

Or, imagine you’ve invested in a promising tech startup and dedicated your time to advising the founder. A few years later, it is struggling. You may feel the desire to invest additional capital in an effort to help turn it around.

Two methods the authors suggest for fighting motivated thinking biases are “trip wires” and “decision points.”

1. Trip wire: Trip wires allow us to preempt our thinking biases before we get into a situation where emotions override good decision making. They “redirect us down a more logical path.” If you can foresee the possibility of getting into a difficult situation in the future, you can make the decision now about how you will act if that situation arises. For instance, before leaving their base camp, many mountain climbing guides determine the conditions (i.e., time and weather) that will determine if they later break off their summit attempt. This trip wire prevents potentially life and death decision-making under the stress and emotion of the summit attempt.
2. Set a decision point: Decision points are similar to trip wires, but less binding because they trigger additional thinking instead of a predetermined action. They are often used in competitive bidding or negotiation to set a price where, when reached, a reassessment of objectives and options must take place.

The Take-Away

In The questions every entrepreneur must answer we considered large strategic questions we should answer to ensure our venture finds its way. This article, in contrast, drills into the minutia of answering those (and other) questions correctly—by avoiding thinking biases that could trip us up.

We’ve all heard the advice to always get three quotes when shopping for a contractor, whether it is to add a sunroom to your house or build a new website for your company. This common rule of thumb makes sense within the framework of this article—you are putting more options on the table while avoiding yes-no framing of your options.

Though you’ll never foresee all the possible consequences of decisions, thinking through the most likely—or most threatening—can lead to setting appropriate trip wires and decision points before stress and emotion take over.

Decision trip wires will save your bacon—they’ve saved mine. Ultimately, you’ll be on the right path to minimizing thinking biases and errors if you remember: envision multiple possibilities, consider many objectives,  and avoid yes-no framing.

References

1. The value of the next best alternative.