Cognitive biases and how to overcome them

Once I shared this list of cognitive biases with my network and they told me that I should write a blog post about it, so here it is.

What is more alluring than the number of how many they are, is that they are all hard to spot, and they are all hard to avoid.

I will not go into details about each of them, but I will give you a few examples of how they can affect you.

One that is very common is the confirmation bias, which is the tendency to search for, interpret, favor, and recall information in a way that confirms one's preconceptions.

For example, if you are looking for a new job, you will tend to look for jobs that confirm your preconceptions, and you will tend to ignore the ones that do not.

Another one is the availability heuristic, which is the tendency to base the probability of an event on how easily instances come to mind.

For example, if you are looking for a new client, you will tend to look for clients that are easily available, and you will tend to ignore the ones that are not.

Another one is the anchoring effect, which is the tendency to rely too heavily, or "anchor", on one trait or piece of information when making decisions.

For example, if you are looking for a new professional connection, you will tend to look for connections that are anchored to your current network, and you will tend to ignore the ones that are not.

Another one, is the money illusion, which is the tendency to overestimate the value of money in the future.

For instance, if you are planning to make some investments, you will tend to overestimate the monetary value of your investments in the future, and you will tend to underestimate the monetary value of your investments in the present.

A last one is, the house money effect, which is the tendency to spend more freely with money that has easily been won.

An example is the money earned at work versus the money earned from gambling. We tend to spend more freely the money earned from gambling, and we tend to spend more cautiously the money earned at work.

But, how can we avoid these biases?

1. Be aware and acknowledge that cognitive bias exists.

The first step is to be aware of these biases, and to be aware of how they can affect you. The more you are aware of them, the more you will be able to avoid them.

2. Equip yourself with tools.

Tools like a crisis plan, evaluation criteria, scoring matrices and even the tried and true checklist can enforce the discipline needed to ensure objective and reasoned decisions and avoid cognitive traps, particularly in a crisis.

3. Surround yourself with multiple viewpoints.

Surround yourself with people that have different viewpoints, and that can challenge your own. The more you are surrounded by different viewpoints, the more you will be able to avoid cognitive biases.

A report by McKinsey [1] studied board composition, returns on equity (ROE), and margins on earnings before interest and taxes (EBIT) of 180 publicly traded companies in four countries over two years. McKinsey found “startlingly consistent” results: “For companies ranking in the top quartile of executive-board diversity, ROEs were 53 percent higher, on average, than they were for those in the bottom quartile. At the same time, EBIT margins at the most diverse companies were 14 percent higher, on average, than those of the least diverse companies.”

5. Learn to spot common cognitive biases.

First, I found a great way to learn to spot common cognitive biases, is to read a lot of books, and to read a lot of articles. The more you read, the more you will be able to spot cognitive biases.

Secondly, another great way to spot them is to have a mapping of cognitive biases and statements associated with them

For example, here is a mapping of cognitive biases and statements associated with them:

Hindsight bias. Statements like “I knew it all along” indicate hindsight bias. It’s easy to feel and claim this after the fact, but the danger is that hindsight bias distorts our memories. We were unlikely to have been as confident of the prediction before the event as we appear to be after it. This can lead to overconfidence and a belief that a person can predict the outcomes of future events.

Anchoring bias. Statements like “I’m basing my decision on…” indicate anchoring bias. Anchoring bias is the tendency to rely too heavily, or “anchor”, on one trait or piece of information when making decisions. It can lead to a decision that is not based on the best available information.

Etc. I will provide you with a consistent list of those statements in my blog: blog.boulouma.com, since they are so many of them.

Enjoy your day, and be aware of cognitive biases.

Cheers!

[1]: https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/is-there-a-payoff-from-top-team-diversity