Written by: Evan Goodfellow
In a recent article for Forbes.com entitled Why Smart People Make Stupid Decisions the author Christine Comaford looks at the factors that affect us making a rational decision. This article was so interesting because individuals make irrational decisions all the time, and not just with their personal lives but also in business. The amount of time, money and energy lost on a decision based on impulse or false belief can be staggering. That is why market research is so important, it is basically the objective third party that tests these ideas to see whether they have merit, and how much merit they actually have.
Comaford starts out by writing how we have all been there. Made what at the time seemed like the best, most rational decision possible only to look back, sometimes within minutes, and wonder what were we thinking? How did we have such a lapse in sanity? So how does this happen, how can we be so easily fooled? She writes, that the reason why we get fooled is, that “we see what we want to see filtered through our inherent biases, and then we make decisions based on those biases. These biases are called cognitive biases and we all have them.”
The article goes on to define cognitive bias as “the systematic pattern of deviation from norm or rationality in judgment. These biases cause conclusions, inferences, assumptions about people and situations to be drawn in a less than logical fashion.” We are always taking in information from our surroundings and it is getting mixed with our own perception, memories, and feelings which can make things appear different than they actually are.
Comaford asks the question, how can we stop making stupid decisions and start making good ones? The way she highlights, is for us to start understanding our biases. By understanding how we are easily fooled into thinking wrongly about a given set of circumstances or information is crucial to making the right decision. She includes the graphic below to highlight key cognitive biases.
Comaford sites Neil Jacobstein, who specializes in AI, who illustrates some key cognitive biases that tend to affect human thinking in a less than rational way.
Anchoring bias: Tendency to rely too heavily, or “anchor,” on one trait or piece of information when making decisions.Availability bias: Tendency to overestimate the likelihood of events with greater “availability” in memory, which can be over-optimistic, overestimating favourable and pleasing outcomes.Optimism bias: Tendency to be over-optimistic, overestimating favourable and pleasing outcomes.Planning fallacy bias: Tendency to overestimate benefits and underestimate costs and task-completion times.Sunk-cost or loss-aversion bias: Disutility of giving up an object is greater than the utility associated with acquiring it.
But why does the brain filter information in such ways that can cause us to make bad decisions? The article goes on to state that biases help us filter vast amounts of information and help us to understand the world around us. The key is not to do away with biases, but to understand them and learn how they can affect us when we are making important decisions.
In business it is important to understand how biases within a company and within the leadership are affecting things both positive and negative. We also believe that a way to keep from making colossal mistakes and start making the best decisions possible is through continually testing ideas, products and marketing with your customers. This is why we believe our online community software is so crucial. The tools found in our software allow for numerous types of testing with your customers to help you make the most informed decisions possible.
If you would like to find out more how our software can help your business please contact us.
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