CTO Compass

3 Cognitive Biases That Sabotage Your Daily Decisions

CTO Compass series

The next stop in our journey to better decision-making is that of cognitive biases.

Cognitive biases are intuitive tendencies that lead to flawed reasoning, false conclusions, and poor decisions. Did you know that more than 30 biases afflict our reasoning skills? These biases evolved with good intentions; they are mental shortcuts that worked well enough for fast, simple decisions that kept us alive and out of danger. However, as a species, we have moved too fast for our brain hardware to change and keep up, so these biases now undermine our ability to make better decisions in modern circumstances.

In today’s email, we’ll explore just a few of the more common ones that affect good decision-making.

Outcome Bias (or why ‘all’s well that ends well’ is terrible advice)

Let’s start with the probability of outcome bias. This is where you assess the outcome of a decision over its quality. Over time, this can lead to poorer decision-making in the future and is commonly associated with financial decisions.

For example, let’s say you’re evaluating the performance of your employees. If you only look at the results and not the quality of their actions and decisions leading up to the outcomes, you’re succumbing to this bias. You’re excluding the external factors that can influence the final outcome when you’re interested in whether they made informed choices.

Despite the inherent uncertainty in most business decisions, businesses often over-reward good luck rather than the quality of employees’ decisions. When two employees make decisions based on identical information, their performance should be evaluated up to the final outcome, regardless of whether the outcome was favourable or not. However, research shows that outcome information heavily influences performance evaluations, which assigns undue weight to irrelevant factors in assessing an employee’s overall knowledge, skills, and performance.

Focusing excessively on outcomes may cause the workers to view themselves as competent or incompetent based solely on results. This could lead to them breaching policy decisions or disregarding ethical concerns in favour of positive results.

Outcome bias can impair decision-making by causing individuals to base their choices on luck or chance rather than thorough analysis. This can result in poor financial decisions and choices that do not benefit the individual or organisation. Additionally, outcome bias may reduce accountability as people may not take responsibility for their decisions if they are evaluated solely on the outcome instead of the decision-making process itself.

Try these ideas out:

  1. When assessing your own or others’ decisions, focus on the quality of the decision-making process itself. Ask: Was all available information considered? Were risks and alternatives weighed? Were logical steps followed? Judge the decision on its merits, not just the outcome.
  2. Conduct “decision autopsies” to separate luck from skill. After a major decision plays out, do a post-mortem to tease apart the role of chance vs. choice. Identify which factors were within the decision-maker’s control and which were not. This helps clarify whether a good outcome was due to a smart decision or just dumb luck (or vice versa).
  3. Reward smart decisions, not just positive outcomes, in your organization. When evaluating performance, recognize and reward well-made decisions even if they didn’t pan out as hoped. Conversely, don’t praise poor decisions that just happened to be okay. To encourage a culture of good judgment over gambling, reinforce the importance of sound decision-making practices, not just lucky results.

The sunk cost fallacy (or how to escape the lure of past investments)

The sunk cost fallacy is a common mistake where people let irretrievable expenses like time or money affect their choices, even though they’re irrelevant now. You can spot this fallacy all over the place – in business, personal projects, even relationships. If you’re not careful, it can really trip you up. You might find yourself stuck in a dead-end job, a toxic relationship, or pointless routines that just waste your time and energy.

If you’re alone, which would you be more likely to keep watching? An awful 35-minute TV show that you’re 5 minutes into or an equally terrible 2-hour movie that you’re 90 minutes into? Either way, you spend another 30 minutes on something you’re not particularly enjoying.

If you chose the two-hour film, you’re not alone. Most people will be likelier to keep watching the movie because they’ve already invested much more time into it. That’s how easy it is to fall into this trap. Your reluctance to abandon all the work you’ve put into something makes it really easy to make poor decisions that leave you worse off.

Being aware of this bias will help you to make better use of your time, get the most out of your money and know which projects are worth finishing and which ones you should stop working on.

Consider these quick things:

  1. Before starting a project, set clear criteria for when you would walk away – and keep to it.
  2. If I hadn’t already invested X in this, would I still choose to move forward?
  3. Ask for advice from a trusted friend or colleague who’s not been involved in the project. They can bring their unbiased opinion as they don’t have the baggage you have about the investment you’ve already made.

The planning fallacy (or why your projects are always late, and what to do about it)

The planning fallacy is a cognitive bias that affects our ability to accurately estimate how long it will take to complete a task. It is a common phenomenon that can lead to missed deadlines, budget overruns, and other problems.

Several factors contribute to the planning fallacy. For example, people often focus on the most optimistic scenario, in which everything goes exactly as planned. They may also forget to account for unexpected interruptions or complications. Furthermore, people may be overly optimistic about their abilities or fail to consider the full complexity of the task.

Additionally, it can lead to frustration and disappointment all around, as tasks take longer than expected and deadlines aren’t met.

I find the best way to counter this bias is to use a simple checklist to ensure I’ve considered all the angles when estimating how much time I might need to complete a project.

  • Have I done this before? And have I done similar more than once? The more you’ve done, the better the time range can show you how much it can vary even for similar tasks.
  • Have I accounted for taking breaks, my ability to focus for long stretches, and being interrupted?
  • Have I broken it down into small, granular steps where I can be more confident in how long each small step might take?
  • What is my ability in this area? What don’t I know? What don’t I know, I don’t know? Here, I’m trying to discover the blind spots where I might hit unexpected but not uncommon issues that I need to allow buffer time for.

It might be a well-worn cliché, but if in doubt, whatever numbers you come up with, double them, and then double them again. Then you’re probably in the right ballpark.

Often, especially in the business world, this leads to uncomfortable situations. Still, it really helps to ensure that the project is truly valuable and worth doing and not set yourself up for failure when you later discover it will take much more time and effort than you thought.

Cognitive biases may be hardwired into our caveman brains, but by being aware of them and using some of these tactics, we can outsmart ourselves and make better decisions. It’s time to evolve!

⚡️ Thinking Time ⚡️

Consider the impact of these three common biases on a decision you’re about to make or have made recently. Write down how each of these common mistakes may impact your decision. Not all biases will apply to all decisions – just take a moment to consider each bias and skip over any that don’t apply to your situation.

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