Cognitive Biases | Behavior Matters!

Tag: Cognitive Biases

Illusions of Invincibility

The workplace is prone to experience a variety of common cognitive biases. One bias, called the overconfidence bias, can exacerbate many other cognitive thinking errors. In a study, 93% of participants claim to be better than the average person in terms of their driving abilities (Svenson, 1981). Considering this improbability, we must question why so many individuals have an inflated sense of confidence in themselves.

Failure to acknowledge our own limitations and overlook the instances in which our decisions were biased leads us down a path of suboptimal decision-making. Within organizations, this overconfidence in one’s own abilities can cause conflict with co-workers, poor investments, and missed opportunities.

The Confidence Paradox

The overconfidence bias is the tendency for an individual to have an inflated sense of their own abilities, physical appearance, intelligence, or knowledge. This inflated opinion of ourselves often leads to sub-optimal decisions or actions as we trust our own intuition instead of looking at the true facts.

Overconfidence often stems from past successes that can blind individuals to the flaws in their approaches and hinder innovative solutions. For example, you may recall a very popular movie rental chain going bankrupt just six years after its peak (e-careers.com). The organization’s prior success dominating the movie rental realm caused them to downplay the potential for online streaming services and the decision to pass up the opportunity to buy the now current largest movie streaming service. An overconfident decision based on their past success ultimately led to their demise.

Confounding this paradox, is that this inflated confidence can also lead to having an inaccurate assessment of our own vulnerability to bias and errors. Without acknowledging this vulnerability, we are unable to combat other biases and heuristics such as egocentrism and availability bias.

Between Confidence and Consequence

Within organizations, the overconfidence bias can significantly impact the quality of decisions made. Decisions based off an inflated sense of confidence can cause one to overestimate their accuracy and underestimate the risks involved with a decision. At all levels of an organization, this bias can lead to suboptimal decisions that negatively impact organizational effectiveness.

The overconfidence bias can also influence communication within organizations. Co-workers can mistake a confident assertion for competence and offer their support in favor of a poor decision. When leaders are overconfident, they may be less receptive to conflicting opinions or ideas and turn down innovative ideas. Issues with collaboration and team dynamics can also result from the overconfidence bias going unaddressed. When an overly confident team member fails to listen to the alternative choices presented by members of their team, creativity and innovation are stunted.

Breaking the Illusion and Overcoming Overconfidence

Mitigating the overconfidence bias involves training and educating employees on this common cognitive error. When employees understand the errors that we as humans are all prone to experience, self-awareness increases, and they are better able to recognize when they are committing this bias.

Leaders should strive to promote a culture of open communication and encourage new ideas. Setting the example as leaders of learning from mistakes and taking accountability of decisions encourages team members to follow suit. Conducting post-mortems of decisions can help to assess whether the overconfidence bias influenced a decision. This in turn, can help to prevent the same occurrences from happening in the future.

The Lantern Group specializes in applying behavioral science insights to positively influence behavior change within organizations. We take a unique approach when crafting organizational communications and training by fusing visual design with behavioral science to create messages that resonate with employees. Reach out to us today to find out how we can help your organization!

Sources:

Ola Svenson, ‘Are We Less Risky and More Skillful than Our Fellow Drivers?’, Acta Psychologica, 47 (1981), 143–48.

10 businesses that failed due to poor management | e-Careers

Knowing When to Abandon Ship: The Sunk Cost Fallacy at Work

On January 19, 2024

In Uncategorized

Sinking Ship

You have invested $10,000 into a hot new energy drink eggnog stock that you heard would take off like Santa’s sleigh. You’re not sure why, but the stock’s performance hasn’t done what you expected. In fact, you are down over 20% after the first week. Your friends are all telling you to sell, but you’ve already invested this much into it and still think that there is a chance that it can rebound – you decide to just stick it out. Over the next few weeks, the stock tanks, but each day, you keep thinking about the $10,000 that you invested and hope for a rebound to get that money back. In the end, the company folds and you lose the whole investment.

This is an extreme case of The Sunk Cost Fallacy.

Getting Invested

The Sunk Cost Fallacy is the tendency to continue to invest resources such as time, money, or energy into a decision even when it becomes clear that this decision is not in one’s best interests. When we make a significant investment, it becomes more difficult for us to walk away from it. Past investments heavily influence present and future decisions, regardless of the potential benefits.

This bias is frequently seen within organizations and the continuance of certain projects that, to an outsider, may seem doomed from the start. For example, a company that continues to pour a substantial amount of time and money into a research project that has failed to produce the expected return. Prior investments can weigh so heavily on the minds of decision-makers that they start to ignore warning signs and continue pouring more into the project to see it through.

What’s There to Lose?

A related concept, loss aversion, may contribute to the occurrence of the Sunk Cost Fallacy. For some, the fear of acknowledging a loss can lead to the persistence of a failing project in hopes that a further investment will eventually turn the tide (think about the story at the beginning of this blog). Humans are often more motivated to avoid a loss than to acquire an equivalent gain, making it difficult to give up on prior investments seen as a loss – particularly if there is even the slightest chance that the loss will not be realized (i.e., that the stock will rebound or that the research will have a miraculous breakthrough).

Emotional attachments are another factor making it difficult to walk away from investments. Individuals often develop emotional attachments to certain projects or decisions which can cloud their judgment. Making an objective assessment of the current and future state of a project becomes challenging when prior investments that carry an emotional element with them weigh heavily in the decision-maker’s mind.

For organizational decision-makers, public commitments intensify the sunk cost fallacy. Typically, people would rather not admit to a failure. In some cases, this fear of failure is enough motivation to stay the course regardless of the potential consequences. Managers can fall into this trap especially when they assume their organization places a high value on saving face. When the pressure of maintaining a certain reputation comes into play, managers may choose to continue with a sunk cost despite the red flags popping up in the process. Taking accountability for a mistake may be more daunting than continuing with a failed project.

The Art of Letting Go

One of the best ways to combat the sunk cost fallacy is through training. Educating employees on common biases within the workplace and training leaders to prioritize accurate decision-making based on the best potential future outcomes rather than their reputation. Organizations can often avoid any further losses by fostering the right organizational culture. When decision-makers feel comfortable admitting to a sunk cost, further investments into failed projects can be avoided.

The Lantern Group has worked with organizations for over 25 years training employees and leaders on different behavioral science principles to improve the workplace. If you are interested in improving communication, understanding human motivation, and mitigating biases in your organization, contact us today for more information on how we can partner with your organization.

Navigating the Complexities of Co-Workers: One Common Cognitive Error We All Make

On December 18, 2023

In Uncategorized

The Fundamental Attribution Error – Assuming others’ wins or losses are due primarily to personality traits without fully considering how situational factors contribute to their behavior.

Our Brain Takes Shortcuts

We rarely have all of the information when it comes to understanding others and why they make the decisions that they make. This lack of understanding does not sit well with our brains. We have evolved to crave certainty and a desire to know why other people behave the way they do.* However, to achieve this certainty, we would typically have to spend a lot of time and mental effort to peel back the reasons for other people’s behavior.  

To save time and energy, our brains apply heuristics or mental short cuts, which help our brain ascribe reasons for other people’s actions. As useful as these short cuts can be, they can also be damaging when they are incorrect, misinformed or just too simplified to really describe the complexity that most decisions are made in. This can lead to misunderstandings in the workplace, tension amongst colleagues, and policies that backfire.

The Fundamental Attribution Error

One common type of cognitive error that our brains make in this situation is called the fundamental attribution error (FAE). When we try to understand someone else’s actions, we tend to assume other’s negative outcomes are a result of their personality. Our brains assume that they are lazy, or not smart enough, or that they didn’t try and fail to fully consider the impact of situational factors on their results. Interestingly, when others experience success, our brains often attribute their success to luck and situational factors (i.e., they got a head start or were on the easier course).**

The FAE occurs as we try to understand how others arrive at certain outcomes. In the corporate world, this can have a negative impact because when we judge a co-worker for missing deadlines, we might jump to the conclusion that they are lazy or lack time management skills. In reality, there are a multitude of situational factors at play that we are unaware of.

When Tension Arises

One very negative aspect that can arise with FAE is when it is combined with another common human bias, which is our in-group favorability. This in-group bias underscores the fact that we tend to think more highly and are more forgiving of people that we see as part of our in-group. It’s often easier for individuals to understand members of one’s “in-group,” rather than members of one’s “out-group.”

We have more knowledge of “in-group” members and their daily experiences. This makes it easy to understand when outside factors influence productivity, and we are less likely to apply the Fundamental Attribution Error. This can be more difficult with “out-groups” because we have limited knowledge on their day-to-day, their workload, or any organizational issues they must overcome. Therefore, our brains are more likely to apply the FAE towards people in “out-groups.”

We can see how this could create significant issues for organizations.

For managers, attribution errors can lead to unfair performance reviews, passing a quality candidate up for employment, or unfair policies that push out top talent – just because they fall into an “out group.” When an “out group” employee’s performance is not on par during their yearly performance review, their manager may be quick to assume the employee failed to put in the effort needed to meet expectations.

Beyond Bias: Mitigating FAE

Fortunately, there are ways to mitigate the impact of FAE. When organizations foster psychological safety, employees are more open to expressing their true selves to the group. By creating an atmosphere where people can be themselves, we gain greater insight into their personality and motives, thus reducing the need to make assumptions about why they did something (i.e., they become more of an in-group). Additionally, psychological safety allows people to feel safe to bring up issues or contexts that may negatively impact their performance – again, providing a deeper insight to why the outcome happened the way it did.

Another way of reducing FAE inside organizations is providing managers with training and coaching on how to provide effective feedback. One of the key aspects of FAE is that it reduces the mental effort needed to get to the root cause of the behavior. Effective feedback doesn’t take that shortcut. Training managers to dig into the root cause of an issue and identify other factors that impact performance, forces them to look past the initial gut reaction of applying FAE to people’s intentions. When we teach managers to look deeper into the context that the behavior is happening in, they often find that the issue is not with someone’s lack of effort or skill but has to do with outside factors.

The Lantern Group

The Lantern Group specializes in applying behavioral science insights to positively influence behavior change within organizations for decades. We know how important effective communication is to organizational success. Our team takes a holistic approach to crafting organizational communications and training – we fuse visual design and behavioral science to create messages and insights that resonate with employees and help shed light on the reasons we do what we do. Contact us today to find out how we can help your organization!

*This evolutionary factor goes to trying to make sure we understand other’s motives as it relates to our overall safety. Note that one of the biggest threats that our ancient ancestors faced was other people in the tribe. We needed to understand how they were feeling and why they behaved the way they did to ensure that we stayed on their good side or could predict their behaviors.

**It has been hypothesized that we attribute others success to luck to help maintain a positive self-image of ourselves. We don’t like the cognitive discomfort that comes to thinking that maybe we are not as good as someone else.

Tag: Cognitive Biases

Confidence is Key, Until It’s Not: The Overconfidence Bias at Work