March 24, 2015

On Beer, Basketball, and IKEA

As defined in Wikipedia, cognitive biases are tendencies to think in certain ways that can lead to systematic deviations from a standard of rationality or good judgment.  Cognitive biases are patterns of thinking and behavior which we consistently use despite them leading us to make less than optimal decisions.  Wikipedia lists over 90 examples of cognitive bias.  Check out the link, and I promise you’ll find several examples that influence your thinking daily.  With all this irrational thinking going on, how can we avoid making bad decisions in our work and personal lives?

The field of economics defines a “rational actor” as one who makes decisions in their own self-interest in order to maximize their utility (i.e. maximize benefits received). Most economic theories either implicitly or explicitly assume that all actors are rational. Behavioral Economics is the study of other factors that influence economic decision making, like social or emotional factors.  Below are some examples of “irrational” behaviors and a discussion of how you might avoid letting these biases influence you into making bad decisions.

IKEA Effect / Not Invented Here

Research has shown that many of us are likely to overvalue things that we have built ourselves, such as furniture from IKEA. People seem to hang on to IKEA furniture much longer than they would other pieces of similar price and quality. This additional layer of value could be caused by an emotional attachment to something you “built” with your own two hands. Now, I cannot make heads or tails of IKEA furniture directions, so we won’t be keeping anything I put together. My wife, however, is one of the rare breed that can actually make sense of those directions, so those pieces might stick around a bit.  Regardless of your level of IKEA craftsmanship, the fact remains that one’s participation in the production of a product impacts their perceived value of said item.

Kenway has been working with a long-time client (let’s call them Company A for identification’s sake) that is currently involved in an integration effort following a merger (with Company B).  Given that the two companies were in the same industry and region, they naturally had faced almost identical business problems.  While both companies were successful, they had solved these problems with different approaches.  One great example of this was a key business system which both companies had purchased independently, but implemented differently using custom configuration, 3rd party add-ons, and in-house custom development.  As I sat in a meeting to determine the future direction of this platform for the merged company, I was struck by how each of the people that had been involved in implementing the software initially were strongly attached to “their” version.  I even found myself questioning some elements of Company B’s implementation, because I had been involved with Company A’s implementation.  This is dangerous territory.  Not only were decision makers being influenced by their individual bias, but the project would also face significant change management challenges if the end product was perceived by some users as a step back from their current tool.

Thankfully, the group eventually was able to set aside their attachment and identify a path forward that involves using a unified approach but making some changes to account for key features that the entire group agreed were valuable in the end-state solution.  These sorts of challenges will continue to arise throughout the integration.

It is never easy to see something that you’ve worked on get tossed aside for another’s idea.  In these sorts of circumstances, looking to a truly unbiased source for an opinion is helpful.  You should ask someone that wasn’t on either project, find someone from another department that has enough knowledge to evaluate the options, or use an external consultant to provide an unbiased assessment of the options before moving forward with a decision.  All of these options encourage the use of fact-based evaluation while minimizing the emotion or opinion based reasoning of a biased decision process.

Confirmation Bias and the Effect of Expectations

The expectations that we have prior to experiencing something profoundly impact the way we perceive that event.  Dan Ariely’s book, Predictably Irrational, describes several examples that illustrate the Effect of Expectations.  One of my favorites is this experiment with beer.  College students given free, blind samples of beer tended to choose MIT Brew, which was essentially Budweiser with some balsamic vinegar added, over a regular Budweiser.  However, if the subjects were told before the taste test that one of the beers included vinegar, they were far more likely to dislike the vinegar beer and choose Budweiser instead.

You may have seen a similar effect when watching a sporting event with a fervent fan of one of the teams.  I recently had the opportunity to watch my nephew play in a high school conference championship game.  Two of my close friends, both graduates of the University of Illinois, attended the game with me.  My nephew is an excellent basketball player (if I do say so myself), but in this game he was asked to guard a 6’9” player that’s being recruited to play at Division I schools.  At about 6’1”, this was a tall order for my nephew and several of his teammates that also took their turns.  Both teams played hard and, given the significant size difference, you won’t be surprised to hear that the game got physical.  The big guy took some hard fouls and delivered a few, as well; including an offensive foul that sent my nephew to the sideline bleeding (as you might imagine, my sister was not pleased with this turn of events).  In the end, my nephew’s team lost the game.  The next day, my two friends were not happy to learn that the player is being recruited by their alma mater.  They could not believe that their school wanted an athlete that was so clearly a dirty player.  However, as luck would have it, one of my two friends is a teacher.  One of his students is the son of a referee that worked the game.  As they discussed it, his student related that his dad was impressed at how well the player had kept his cool given the physical defense that was played on him the whole game and some of the fouls that he absorbed. My friends had succumbed to a mixture of Confirmation Bias and the Effect of Expectations.  Exposed to the very same actions that the referee saw, they saw them as dirty play because they were rooting for my nephew’s team.  The referee saw those same actions as showing great restraint.

This effect is at work in the business world as well.  A few years back, a Kenway client decided on an implementation strategy to solve a reporting problem that involved creating an intermediate data warehouse (the decision pre-dated Kenway’s involvement).  However, one of the key business sponsors disagreed with the approach at the time.  Nonetheless, the project went forward, and the data warehouse continues to be a part of ongoing projects for this client.  Despite its continued use, the same business partner that disagreed with the approach initially continues to raise objections to the cost or technical approach of each solution that proposes to leverage this particular data warehouse.  Regardless of whether or not the original decision was correct, it is clear that the original objector continues to oppose everything to do with the solution.  Moreover, the technology partners struggle to respond to his objections, because they have become so conditioned to expect the objection.

It takes significant effort to set aside our expectations and original opinions on a topic, but try to take a neutral approach.  Moreover, look at others in the room as sources of new information, people from whom we can learn, not as adversaries.  If you go into each encounter seeking to learn something, you will be more likely to do just that.

Overcoming Cognitive Bias

The first step in overcoming cognitive bias is to accept that it exists and that it may impact you.  Just having that knowledge will help you think more objectively about the business problems that you face.  Furthermore, don’t hesitate to ask for outside help, make an honest attempt to learn from and understand the perspective of others every time you engage with them, and acknowledge your own bias.  Finally, if you really must buy IKEA furniture, call my wife before you attempt to assemble it.

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