The Grand Rational — Utilising Your Biases
Our brains are lazy. Or efficient, depending on which way you want to look at it. Either way, if there’s a shortcut to processing a certain piece of information, your brain is likely to find it. Two Israeli-American psychologists, Tversky and Kahneman, conducted many studies and wrote a book (‘Thinking, Fast and Slow’) based on this theory — that humans are not rational beings.
When we’re creating products, or making business decisions, we want to base our choices on fact and reason. But at last count, we act under the influence of 188 cognitive biases and heuristics (shortcuts). That’s a lot to keep up with. So here are three biases you can look out for, and three ways to stay rational.
When making decisions, we latch on to the first related piece of information we receive, and use it to inform our thinking on that topic. For example — a used car salesman offers you a car for £10,000. That figure might have been plucked out of thin air, but your unconscious reaction is to anchor to this price-point, and use it to inform your subsequent judgements. £6,000 suddenly seems a steal, regardless of the fact that the car is really worth 3k. A way to utilise this bias — when you’re negotiating, get your offer on the table first. It’s nearly impossible for your counter-party to avoid anchoring to your suggestion.
Humans are extremely loss-averse — we’d prefer to not lose £5 than to gain £5. This means that when facing a decision, the likelihood of us taking a risk is affected by the way the question is framed either as a loss or a gain. You can try this below…
600 people are affected by a deadly disease. You’re in charge of choosing the treatments in both cases — which do you pick?
- Treatment A (which saves 200 lives) or Treatment B (which has a ⅓ chance of saving all 600 people, and a ⅔ chance of saving none)
- Treatment A (where 400 people will die) or Treatment B (a ⅓ chance that no-one will die, and a ⅔ chance that everyone will die)
Logically, the treatments are the same in both scenarios. But in scenario 1, more people chose Treatment A — they were risk-averse when the question was framed in terms of saving others. And in scenario 2, when the question was framed in terms of loss, they were much more likely to take the risk and choose Treatment B. In other words, you’ll take a risk to avoid the stick, but not for the carrot.
3. Sunk Cost Fallacy
If cost outweighs benefit, an action isn’t rational. But as we’ve heard, we’re not rational creatures, and this is especially so when we’ve already made an investment of time, money, or emotion. If circumstances change and a project or product no longer looks viable, but we’ve already spent time or money on it, we’re much more likely to throw good money after bad. We chase our sunk costs — after all, “in for a penny, in for a pound”. This is where prototyping is such a valuable tool — it allows us to build an idea of viability and feasibility, without building so much commitment that we can’t see it objectively.
Now for the hard part… How do you stay rational?
1. Fully equip yourself
If we’re short on time, or lacking information, we’re more likely to take cognitive shortcuts. This even holds true at restaurants — if we’re under time pressure, we’re more likely to choose the ‘want’ over the ‘should’ option. The spaghetti carbonara, rather than the salad (hold the dressing). So make sure you set aside the time and space to gather insight on a situation and to make your decision further in advance of the consequences.
2. Playing Devil’s Advocate
Part of the adaptive benefit of making biased decisions is that the process is fast and automatic. So simply taking a moment to stand back and ask “what are some reasons why I might be wrong?” or “why might this not succeed?” is a quick way to highlight gaps in your reasoning. It’s been proven to reduce anchoring, as well as improving the accuracy of confidence estimates.
3. Consulting a diverse group
Making decisions as a group has its own plethora of pitfalls and biases (that’s one for another blog). But if your group has a diverse range of expertise, and aren’t afraid to speak up, then this introduces a great safety net to reduce bias and create a wider range of ideas and critiques.
If you’re keen to explore beyond the obvious and look past your biases to make decisions regarding your customers, book yourself a space on our ‘Insight in a Day’ workshop. Limited tickets still available for Manchester on the 7th February.