Perception errors often lead to problems in companies
05/20/2019 | Planning and control errors are understood as systematic errors. They interfere with our ability to make informed decisions. The knowledge of these errors is a prerequisite for their recognition and thus the basis for their avoidance. In our consulting work in companies, we come across certain patterns again and again.
Distortions are not accidental
Planning deviations do not only result from the unscheduled implementation of decisions made or from the occurrence of special external events. Biases such as overconfidence or unfounded optimism can also lead to mistakes. It is important to understand that bias does not occur randomly. They are not to be confused with random variations in decisions (dispersion). Think of the bathroom scale in your bathroom, it’s a good way to illustrate the difference. If the scale always indicates either too high or too low a weight, there is a systematic error, a bias. If the weight depends on where you put your feet on the scale, it is a random variation; this is called scatter. (Daniel Kahneman, Andrew M. Rosenfield, Linnea Gandhi, Tom Blaser 2016)
Unconscious perceptual errors
Psychologists and behavioral economists have discovered many cognitive biases that impair our ability to objectively evaluate information, make informed judgments, and make meaningful decisions. A cognitive bias is a cognitive psychology collective term for systematic faulty tendencies in perceiving, remembering, thinking, and judging. They remain mostly unconscious and are based on cognitive heuristics (rules of thumb). Rolf Dobelli alone presents over 100 cognitive biases in his book “Think Clearly, Act Cleverly”. (Dobelli 2015).
If you are approaching the topic for the first time, then you should try to categorize / group the type of biases for yourself. The procedure helps to work out individual priorities in observation.
Types of cognitive distortions
Allow me to share a few simple examples that we uncover time and time again in our corporate consulting work.
Overconfidence bias: We are too optimistic about the outcome of planned actions.
Cognitive biases in perceiving and judging alternatives
Anchoringeffect is a term for the fact that people are influenced by currently available environmental information when they consciously choose numerical values, without being aware of this influence. The environmental information has influence even when it is actually irrelevant to the decision. It is therefore an effect in which the judgment is guided by an arbitrary anchor. The result is a systematic bias in the direction of the anchor. The problem with anchoring is that the allocation of resources is not oriented towards the strategic challenges of the future.
Group thinking: We strive for consensus at the expense of a realistic assessment of alternative courses of action. The danger of groupthink is its pronounced rigidity and irrationality.
Confirmation bias: This is the tendency to select information in such a way that it fulfils (confirms) one’s own expectations. We are not objective in our search for information.
Cognitive biases in formulating alternatives
Lossaversion: In psychology and economics, it is the tendency to value losses more than gains. Loss aversion is a component of the new Prospect Theory, which was established by Kahneman and Tversky in 1979 (Kahneman and Tversky 1979). An important finding of this theory is that individuals behave irrationally in decision-making situations when uncertainty plays a role.
Status quo mistake: Most people prefer the status quo to change. In planning, this can mean that decision-makers often remain with the current state as the most convenient and least risky alternative (an obstacle to a culture of innovation).
These and of course other practical examples are confirmed in the relevant literature.
Our main purpose in this short article is to introduce and explain the concept of bias as a source of error to the interested reader. It is undisputed that biases are often major causes of major problems for companies. It is extremely difficult to reprogram the “brains” of the people involved. Instead, change the decision-making environment of your employees. The knowledge of these errors is the basic condition for their recognition and one of the preconditions for their avoidance. If we know when we are getting in our own way through distorted perception, we can use targeted tools to get out of this trap. This broadens our perspective and helps us make better decisions. TD Trusted Decisions GmbH supports its customers with different tools from its systemic consulting approach.
Philipp Wicke | Managing Partner
- Fast thinking, slow thinking; Settlers 2012; Daniel Kahneman
- The Halo Effect: How Managers Let Themselves Be Deceived; Gabal 2008; Phil Rosenzweig
- The art of clear thinking: 52 thinking mistakes you’re better off leaving to others; Hanser 2011; Rolf Dobelli
- “Prospect Theory: An Analysis of Decision under Risk”; In: Econometrica. 47 (2), pp. 263-91.Kahneman, Daniel; Tversky, Amos (1979).
- “Always on target 12/2016”; In: Harvard Business Manager; Daniel Kahneman, Andrew M. Rosenfield, Linnea Gandhi, Tom Blaser (2016).