Einstein once said, “Common sense is the collection of prejudices acquired by age eighteen.” Common sense, Einstein was arguing, can often be the enemy of rationality, science, and fact-based decision-making. We are all guilty of this; every day our decisions are tinged by favoritism, rules of thumb, partiality, heuristics, predilection; call it what you will but our biases come into play with every decision we make and every tactic we execute. The trick is to recognize our own biases, question them every day, and be constantly aware of their often pernicious influence on our decision making.
Here are my 7 favorite cognitive biases, each of which has the ability to impact on your decision-making process, and some thoughts on how they can be leveraged and ways counteract their influence in your quest for wise determination.
1. Anchoring.
Humans have a tendency to rely very heavily on one specific piece of information in their decision-making. This can happen in everyday life decisions, or in important negotiations. For instance, when looking at a new house a buyer may notice that the roof needs work, and may be prone to focus on that alone, while ignoring the fact that the seller has recently installed a new HVAC system, upgraded the electricity, and refinished all of the hardwood floors. The same seller, during negotiations, may wisely make a low (but not ridiculously low) offer to the buyer in the hopes of “anchoring” the negotiation around that lower number. Studies (most famously Tversky and Kahneman) have shown that when asked to estimate a number or percentage, if the researcher suggested a low number, the participant’s estimates would skew lower, and when a high number was suggested, the result would be the opposite.
How can small business owners leverage this bias? Be aware of the “lock-in” effect, and assess all information critically. Remember that your counterpart in any negotiation may present information that is self-serving, so look skeptically at the particulars. Anchoring can also be used to your advantage – remember that your negotiating partner is equally susceptible to this bias.
2. Bandwagon effect.
We are prone to believe that if lots of other people are doing something that we can or should do the same. We see this every day with people buying products, attending movies, and even joining political movements. Just because others do or believe something, does not necessarily mean that it is the best course of action, or the most valuable philosophy. Herd behavior and conformity can have a negative impact on your business decisions and can impact your ability to consider alternatives and define problems.
How can small business owners leverage this bias? If everyone else is onboard with a plan or proposal, there may be good reason to question why. Seek out alternatives and remember that groupthink can destroy a team’s effectiveness and limit a manager’s ability to choose between viable options.
3. Confirmation bias.
Closely related to the Bandwagon effect, is the confirmation bias. This is a predisposition to look for or information that confirms something we already believe. In other words, we prefer to see data that supports what we already “know,” so if you are politically conservative, chances are good that you prefer the information you get from Fox News. On the other hand, if you are a liberal, you would probably be more comfortable consuming your news via the Huffington Post.
Prior to this no one had distilled an alcoholic beverage of similar quality, clarity, and flavor. Of course the Russian aristocracy wanted to keep it to themselves and for several centuries it was only available in limited quantities and at great cost. By the mid-18th century, the Empress had decreed that vodka distilleries were the exclusive purview of the government and and in the latter half of the 1700s taxes on Vodka sales were responsible for up to 40% of the Czar’s revenue! Meanwhile, distillation of Vodka spread like wildfire to neighboring countries. For instance large-scale vodka production in Poland dates to the 16th century and the Ukranian word Horilka (or Vodka) appears in written form as early as 1562.
The company would do the painting and maintenance on the signs and. for the privilege, they would pay the farmer between $1 and $2 per year. It was a pretty good deal for the farmers, as they didn’t have to worry about painting their own barns for the duration of the contract. By the 1960s there were more than 20,000 of these barns in 22 states. Other companies also advertised on bars and this type of roadside advertising continued until it was restricted under the Highway Beautification laws of the 1960s.
The signs were catchy poems, always ending with a punchline, and always grabbing the attention of the passerby; everyone wanted to know how the ditty would end! Through the power of this advertising tactic, Burma Shave would become the second highest selling brand of shaving cream on the market.
