We like to think that we gather all available info and analyzes it rationally before we make a decision.

27 x 46=?

A bat and a ball cost a total of $1.10. The bat costs $1 more than the ball. How much does

the ball cost?

SYSTEM 1 = 10¢SYSTEM 2 = 5¢

Action oriented biasesdrive us to take action less thoughtfully than we should

Excessive optimism. The tendency for people to be overoptimistic about the outcome of planned actions.

Overconfidence. Overestimating our skill level relative to others. We overestimate our ability to affect future outcomes, take credit for past outcomes, and neglect to role of chance.

Interest biasesarise in the presence of conflicting incentives

Misalligned individual incentives.Incentives to adopt views or to seek outcomes favorable to their unit or themselves, at the expense of the overall interest of the company.

Inappropriate attachments.Emotional attachment of individuals to people or element of the business, creating a misalignment of interests.

Misaligned perception of corporate goals. Disagreements about the relative weigth of objectives pursued by the organization

Pattern-recognition biaseslead us to recognize patterns even where there are none.

Power of storytellingThe tendency to remember and to believe more easily a set of facts when they are part of a coherent story.

Confirmation bias.The over-weighting of evidence consistent with a favored belief, underweighting of evidence against a favored belief.

Management by exampleGeneralizing based on examples that are particulary recent or memorable.

Champion biasThe tendency to evaluate a plan or proposal based on the track record of the person presenting it, more than the facts supporting it.False analogies

Relying on comparisons with situations that are not directly comparable.

Stability biasescreate a tendency toward inertia in the presence of uncertainty.

Sunk-cost fallacy.Paying attention to historical costs that are not recoverable when considering future courses of action.

Anchoring and insufficient adjustments.Rooting oneself to an initial value, leading to insufficient adjustments of subsequent estimates.Loss aversionThe tendency to feel losses more acutely than gains of the same amount, making us more risk-averse than a rational calculation would suggest.

Status quo bias.Preference for the status quo in the absence of pressure to change it

Social biasesarise from the preference for harmony over conflict.

GroupthinkStriving for consensus at the cost of a realistic appraisal of alternative courses of action.

Sunflower managementTendency for groups to align with the views of their leaders, wheter expressed or assumed.

Decision quality control: A Checklist

Ask yourself

# 1CHECK FOR SELF-INTERESTED BIASESIs there any reason to suspect the team making the recommendation of errors motivated by self-interest? Review the proposal with extra care, especially for overoptimism.

# 2CHECK FOR THE AFFECT HEURISTICHas the team fallen in love with it´s proposal?

Rigorously apply all the quality controls on the checklist.

# 3CHECK FOR GROUPTHINKWere there dissenting opinions within the team? Were they explored adequatley?

Solicit dissenting views, discreetly if necessary.

Ask the recommenders

# 4CHECK FOR SALIENCY BIASCould the dignosis be overly influenced by a analogy to a memorable success?Ask for more analogies, and rigorously analyze their similarity to the current situation.

# 5CHECK FOR CONFIRMATION BIASAre credible alternatives included along with the recommendation?Request additional options.

# 6CHECK FOR AVAILABILITY BIASIf you had to make this decision again in a year´s time, what information would you want, and can you get more of it now?Use checklist of the data needed for each kind of decision.

# 7CHECK FOR ANCHORING BIASDo you know where the numbers came from? Can there be ..unsubstantiated numbers? ..extrapolation from history? .. a motivation to use a certain anchor?Reanchor with new analysis generated by other models or benchmarks.

Ask the recommenders

# 8CHECK FOR HALO EFFECTIs the team assuming that a person or a approach that was successful in one area will be as successful in another?

Eliminate false inferences

# 9CHECK FOR SUNK-COST FALLACY, ENDOWMENT EFFECTAre the recommenders overly attached to a history of past decisions?Consider the issue as if you were a new CEO.

Ask about the proposal

# 10CHECK FOR OVERCONFIDENCE, PLANNING FALLACY, OPTIMISTIC BIASES, COMPETITOR NEGLECTIs the base case overly optimistic?

Have the team build a case taking an outside view; use war games.

# 11CHECK FOR DISASTER NEGLECTIs the worst case bad enough?

Have the team conduct a pre-mortem: Imagine that the worst has happened, and develop a story about the causes.

# 12CHECK FOR LOSS AVERSIONIs the recommending team overly cautious?

Realign incentives to share responsibility for the risk or to remove risk.

The best way to ruin a decision making process is letting the boss speak first.

Decision making is a team sport. Operating inside silos is deadly. Collaborate.

We need a better recording device.

Today we are getting better and better at measuring what´s easy to measure - not what´s important.

Our ability to make a decision can never be better than the current picture I have of the situation

We need to understand what data we need in order to make good decisions and then measure it evidence based.

IMAGE BY: MATT BLAZE ON FLICKR.COM

Collect the relevant data and ananalyze it properly.

Receptors

Mental maps

Values

Experiences

Language

Intentions

The most successful people are those who are good at plan B.

How most people think it is...

How it really is...

lesson in a tweet

ssǝɔoɹd ƃuıʞɐɯ uoısıɔǝpWe are biased

Daniel KahnemanGary Klein

If everone agrees only one person has been

thinking