We like to consider ourselves rational. That when faced with a decision, we carefully weigh the evidence, use logic to reason to logical conclusions, and take action based on careful thinking. Even those of us who make decisions based on our intuitions — our gut feelings — believe that we could justify them if questioned.
The reality is often entirely different. We’re prone to making decisions based on heuristics that are sometimes helpful, but often wrong, especially in the business environment. Biases and fallacies can lead us astray, damaging productivity and revenue.
Daniel Kahneman, the Nobel Prize-winning economist who extensively studied heuristics and biases with his collaborator Amos Tversky, describes how our thinking can be divided between two systems. System One makes fast, heuristic-based decisions. And System Two is the logical, procedural system of careful thought.
Both are essential, but System One — the default, low-effort system — often causes us to make non-optimal decisions. And any career-oriented professional who makes non-optimal choices is unlikely to prosper.
The bad news is that it’s almost impossible to avoid System One-derived errors completely. They’re baked into the way we think. But knowing about the biases and fallacies that distort decision-making is the first step in avoiding them.
Legendary investor Charlie Munger, the business partner of Warren Buffett, attributes much of his success to understanding how people’s biases lead them astray.
1) Confirmation Bias
This is one of the simplest and most dangerous biases. We look for evidence that confirms our beliefs and ignore evidence that does not. Imagine a disagreement between two colleagues, one who thinks it’s a good idea to open a store in a new location, and one who thinks the company should invest more to promote existing positions.
You can bet good money that each searches for evidence that backs their position and ignores evidence that refutes it. They are unlikely to spend any time at all considering proof that goes against them — they may not even recognize it as evidence at all. It’s obvious why this is harmful. Neither executive attempts to make a decision based on all the available evidence.
Confirmation bias is hard to counter, but one way is to try to prove yourself wrong. Deliberately look for evidence that contradicts your position. Take some time to think about why you might be wrong — at the very least it will prepare you for objections to your approach.
2) Planning Fallacy
Hofstadter’s Law says “It always takes longer than you expect, even when you take Hofstadter’s Law into account.”
People are terrible at estimating how long a project will take to complete. The Planning Fallacy makes itself known at every level of human activity, from determining how long it will take to pick the kids up from daycare to billion-dollar infrastructure projects. Everything takes longer than you think it will (and almost certainly costs more than you think it will too).
One consequence of this is that no one expects time estimates to be accurate. But persistent inaccuracy can damage your career. If you promise to complete a task and other people are depending on you, delays hurt your reputation.
Two tactics might help. The Scotty Strategy, named after Star Trek engineer Montgomery Scott, advises that you double whatever your estimate would have been.
A more responsible strategy is to break down tasks into their parts and evaluation based on how long similar tasks have taken in the past. This probably won’t be entirely accurate either, but it’ll be closer than your initial estimate.
3) Completion Bias
Checking things off a to-do list is fun. It gives us the sense that we’re accomplishing something. But it also leads us to focus on easily completed tasks while ignoring more difficult long-term tasks.
Many of us spend our time “putting out fires” — completing urgent tasks — and avoiding essential but non-urgent tasks such as long-term planning or reassessing strategic goals. The solution is straightforward: first, make sure that you set time aside to focus on more extensive and more complex tasks. Second, break complex tasks into smaller chunks that you can check off one-by-one.
4) The Bandwagon Effect
The Bandwagon Effect, or groupthink, is thinking or behaving in a certain way because that’s how everyone else feels and behaves. It’s possible everyone might be doing a thing because it is the right thing to do. And it’s unwise to act outside of group norms just because they are group norms. But group members who adopt behaviors and thought patterns primarily because it’s what everyone else does are on a dangerous path.
Businesses have to be agile to react to changing circumstances. Compare the recent histories of Kodak and Fujifilm to see why traveling a well-worn road isn’t always a good idea. The solution to this bias is the same as to many others: think for yourself. Don’t accept the status quo because it is approved by everyone else, but look for evidence that supports or refutes generally accepted propositions.
5) Temporal Discounting
Temporal discounting is the tendency to regard outcomes as less important the further they are in the future. Studies have shown that if you offer someone $5 now or $10 in a month, they are more likely to take the $5 now. This is irrational, but it affects many business decisions.
We often see the effects of temporal discounting on online security. Businesses make decisions in the short term that affect security in the long term. Perhaps they don’t regularly update their WordPress site or aren’t strict about data encryption. The long-term impact may be catastrophic, but because it’s rare and in the future, trivial short-term concerns are given more weight.
Being aware of temporal discounting can help professionals to make decisions based on the real impact of future outcomes. It may occasionally be smart to choose short-term goods over long-term risks, but it’s important to be aware of what you’re doing and give the alternative due consideration.
6) Survivorship Bias
I once read a book by a successful business leader who went into great detail about his morning routine: when he woke up, what he had for breakfast, and so on. Why is this important? Because if he did it, and he was successful, then obviously that’s what successful people do.
Put this way, the flaw in this type of thinking is obvious: millions of less successful people have the same routine. The morning routine had no impact on the writer’s success. You’re reading about it because he was successful, not because his morning routine made him successful. A tiny fraction of the people who follow this routine is as successful.
However, more complicated examples of this type of thinking are everywhere in the business world.
Replicating the strategies of a successful business might be smart, but you need to be sure the company was successful because of that strategy, and not because of some other factor you may not have considered. How many companies adopted the same policy and did not succeed?
When a mentor tells you that she succeeded because of a specific behavior, the fact of her success should not be enough to convince you that’s why she is successful. The only way to be sure is to think it through for yourself.
Fallacies and biases can hurt your career prospects and lead to your making decisions that don’t reflect reality. Your best weapon against them is a determination to think for yourself, to consider all the evidence, and to give System Two a workout every once in a while.