May 26, 2016

3 Common Biases Affecting Your Decision-Making

May 26, 2016

3 Common Biases Affecting Your Decision-Making

Gamblers Fallacy, Power of Model Thinking, Decision Making, Confirmation Bias, Fundamental Attribution Error

100,000,000,000,000,000. That’s how many processes are running through your brain per second. Like a computer, human brains can glitch. These glitches are known as cognitive biases.

Cognitive biases are judgment flaws caused by memory errors, miscalculations and emotional irrationalities. These biases can be observed in most decisions made using System 1 (find out about System 1 & 2 here). We are going to share the three most common biases that can occur, what you can do to recognise them and how you can cull them. 


1. Gambler’s Fallacy

Imagine you’ve tossed a coin ten times and it lands on heads consecutively. What side will it land on in the next toss?

Most people will say “heads” despite the probability being an even split of 50/50 every time the coin is flipped. This bias is commonly known as the Gambler’s Fallacy. It also drives the error where bankers believe their next trade will produce the same yield as their past performance.

The solution? Understand the difference between an independent event and a dependent event. When you have an independent event, psychologists Christopher Roney and Lana Trick emphasise the need to remember that each event could be the beginning and not a continuation of previous events. 


2. Confirmation Bias

In 2011 Netflix announced that they would launch Qwikster, a DVD rental business as a separate subsidiary. The CEO retracted this announcement 23 days later. In 2013, Facebook launched Home, which allowed Facebook to be the home screen for phones. Within a month, the app price dropped from $US99 to $US0.99 because it drained the data and battery power of the users. Why did the research let them down? The interpretation of research is usually subjective.

The confirmation bias happens when you form a decision and then look for an affirmation of your belief rather than testing and challenging it against the world. This 2013 study demonstrated that people tend to infer information from statistics to affirm their existing beliefs even though the data may support the opposing view.

A great way to circumvent this is to bring a friend or colleague in on your decision and get them to play devil’s advocate. This will force you to consider the opposing view as something realistic rather than ignoring it. 


3. Fundamental Attribution Error

Has someone ever promised to call but never did? In that situation, you might make the judgment that that person is disrespectful, lacks integrity and is inconsiderate.

What your System 1 managed to circumvent is a consideration of the other environmental factors that might have come into play: perhaps they lost their phone, maybe they are having major life issues or maybe they honestly forgot. The fundamental attribution error is where finger pointing comes from. It stems from our tendency to take things too personally.

A great strategy to combat this is to build up emotional intelligence so you can have the self-awareness to recognise this bias. 


Dealing with Biases

Biases infiltrate our decision-making everyday. Rather than focusing on eliminating them completely, (because we can’t) focus on first distinguishing between biases, cultivating an awareness of our personal biases and learning how to manage them during important decisions.





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