Understanding Decision Bias

September 11, 2015

He who knows and knows that he knows, He is wise, follow him.

He who knows and knows not that he knows, He is asleep, awaken him.

He who knows not and knows not that he knows not, He is a fool, shun him.

He who knows not and knows that he knows not, He is a child, teach him.

                                                                   – Arabian proverb

As an executive coach, I have read many books about executive coaching and leadership. I have attended programs at some of the finest executive coaching and leadership training programs in the world. And even though they all spend a great deal of time on hidden beliefs, which are certainly important, they mostly skip over two elements I find critical in my work: fallacies and decision bias.

Fallacies are the use of ineffective or poor logic in the construction of an argument. Fallacies often appear to be correct but are not. That’s why they can be difficult to detect–in others’ arguments and even our own.

Decision bias speaks to the ways we’re prejudiced or unduly influenced (consciously or unconsciously) when making decisions. CEOs are not immune to bias. None of us are. Our brains are just wired in ways that sometimes lead to really poor decisions.

We recently surveyed all CO2 Partners clients from the past 10 years. In working with us, the benefits our clients most appreciated were:  overcoming obstacles, clarifying focus, and improving decision making. Understanding fallacious arguments and decision bias are two of the ways that we have helped and continue to help our clients make better decisions.

“It is not enough to have a good mind. The main thing is to use it well.” —René Descartes

In today’s post, I want to give a brief overview of decision bias. To date, 37 distinct forms of decision bias have been identified by researchers, and there have been at least that many attempts to categorize these biases. Of all the taxonomies, the one I like best is one of the least well known. It was presented in a paper at Monash University titled A Taxonomy of Decision Biases by David Arnott. First, Arnott reviewed some of the most prominent taxonomies:

  1. Tversky and Kahneman (1974) Three General Purpose Heuristics
  2. Slovic, Fischhoff and Lichtenstein (1977), The look at overconfidence leads to not fully considering the problem and underestimating alternatives.
  3. Einhorn and Hogarth (1981), Behavioral Decision Theory: Process of Judgement and Choice
  4. Sage (1981), More than two dozen heuristics/biases have been cataloged
  5. Pitz and Sachs (1984), Found the people over simplified complex problems which ruled out many important factors in decision making.
  6. Isenberg (1984), How Senior Managers Think
  7. Remus and Kottemann (1986) Toward Intelligent Decision Support Systems
  8. Hink and Woods (1987),
  9. Hogarth (1987) Judgement and Choice
  10. Schwenk (1988) (not quite a taxonomy but bias’ that effect business decisions these bias’ are: Recall, Selectivity, Correlation, Conservatism, Sample, Regression, Desire, Control, Testimony, and Hindsight.) The cognitive perspective on strategic decision making
  11. Keren (1990), and
  12. Bazerman (1998) Judgment in Managerial Decision Making, 8th ed. New York: Wiley.

Then Arrnott constructed the following 6 groupings:

1. Memory Biases – These biases have to do with the consistency of accurately recalling memories. These biases can be either be an enhancement or impairment of your memory. It may come as total absence of memory or be related to the time that it takes to retrieve memory.

    • Hindsight
    • Imaginability
    • Recall
    • Search
    • Similarity
    • Testimony

2. Statistical Biases – These biases result from a systematic favoritism that is present in the data collection, sampling, reporting, or analysis that makes the result non-representative of the sample.

    • Base Rate
    • Chance
    • Conjunction
    • Correlation
    • Disjunction
    • Sample
    • Subset

3. Confidence Biases – These biases increase your confidence when needing to make a decision–even though the confidence and reasoning may not be well-grounded.

    • Completeness
    • Control
    • Confirmation
    • Desire
    • Overconfidence
    • Redundancy
    • Selectivity
    • Success
    • Test

4. Adjustment Biases – These biases revolve around a cognitive error that causes individuals to anchor to the first information or impression they receive. Adjustments are made around this arbitrary starting place, rather than a willingness to set a new, more objective anchor.

    • Anchoring & Adjustment Conservatism
    • Reference
    • Regression

5. Presentation Biases – These biases emerge from how one perceives the acquisition, output, and feedback of data.

    • Framing
    • Linear
    • Mode
    • Order
    • Scale
6. Situation Biases – These biases involve a tendency to attribute behavior to outer circumstances rather than to inner characteristics of the person.
    • Attenuation
    • Complexity
    • Escalation
    • Habit
    • Inconsistency
    • Rule

Arnott does a good job not just of grouping these biases, but of providing descriptions of all 37. His paper is as good a place as any to start if you want to know more about the ways you make decisions. I guarantee you’re not as objective as you think you are!

Learn more about how your brain takes shortcuts, and you will learn when and why to trust your decision-making going forward.

 

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