Biases in decision making
There are over 150 biases, SEEDS framework compresses these into 5 categories. Unfortunately, our professors are late to catch on latest thinking on the subject
Five Categories of Bias
Similarity:
We prefer what is like us over
what is different
Expedience:
Our brain takes shortcuts in
deciding because of its limited
ability to perceive. This gives
rise to expedience bias because
we want to quickly use rule of
thumb to arrive at decisions.
Experience:
We take our perception to be
the objective truth
Distance:
We prefer what’s closer over
what’s farther away
Safety:
We protect against loss more
than we seek out gain
Examples of biases
Clone effect: tendency to like someone who act just like us
Contrast effect Evaluation of a person’s characteristics that is affected by comparisons
with other people recently encountered who rank higher or lower on the same
characteristics.
Halo effect The tendency to draw a general positive impression about an individual on
the basis of a single characteristic.
Horn effect: negative impression about others based on single characteristic
Stereotyping When we judge someone on the basis of our perception of the group to
which he or she belongs, we are stereotyping
Anchoring bias is a tendency to fixate on initial information and fail to adequately
adjust for subsequent information.
Confirmation bias represents a case of selective perception: we seek out information
that reaffirms our past choices, and we discount information that contradicts them.
Overconfidence Bias We tend to be overconfident about our abilities and the abilities
of others; also, we are usually not aware of this bias.
Randomness error Most of us like to think we have some control over our world. Our
tendency to believe we can predict the outcome of random events is the randomness
error.
Hindsight bias is the tendency to believe falsely, after the outcome is known, that we
would have accurately predicted it. When we have feedback on the outcome, we seem
good at concluding it was obvious.
Escalation of commitment refers to our staying with a decision even if there is clear
evidence it’s wrong.
Risk aversion The tendency to prefer a sure gain of a moderate amount over a riskier
outcome, even if the riskier outcome might have a higher expected payoff.
What It Looks Like
In a series of job interviews, for instance, a candidate is likely to receive a more
favorable evaluation if preceded by mediocre applicants and a less favorable
evaluation if preceded by strong applicants.
Managers prefer to hire people who are like them
“He is good in studies, so he must be good in chess also”
“He is always untidy in his appearance, his brain must also be equally disorganized”
“She is from North East, so she must be dumb”
Kodak executives could not think about digital cameras because of deep anchoring in
their own product line.
42 billion dollar GE/Honeywell deal failed in 2001. Jack Welch overestimated his skills,
and underestimated legal troubles
Sachin Tendulkar did not allow any of his team mates to move when a colleague was
doing well in the middle
OB is easier subject than Physics. Social scientists have physics envy. And physicists
often disparage social scientists for their lack of rigor, theory, and laws. Well, in truth,
social science is NOT rocket science.... it's harder. - From the book Everything is
obvious when you know the answer
People in head offices get promoted faster than branch offices
In person appraisals usually lead to better ratings than virtual appraisals
In-person sales pitch has higher probability of succeeding than virtual pitch
Red Fort fortification in Agra made Shah Jehan almost bankrupt, but he kept at it,
because he was invested in grandiosity, and his fear of leaving Agra exposed.