APPENDIX
Cognitive Biases

Following are some of the most common cognitive biases that derail good decisions. Cognitive biases are systemic errors in thinking that nearly all human minds are prone to by way of predictable mental shortcuts and simplifications. Some of the phenomena outlined below may be more accurately termed “heuristics,” or the mental shortcuts that often serve us well to simplify an overly complex world, but they all contribute to an increased risk of biased and suboptimal thinking if the decision-maker is unaware of them. This appendix is intended to provide basic awareness of these phenomena and initial ideas on how to combat them.

Confirmation Bias

People tend to look for and find support for their preconceived notions. People also evaluate evidence in a biased way, such that confirmatory evidence is given greater weight.

How It Derails

• Confirmation bias can lead to the exclusion of key information when it conflicts with existing perspectives, thereby harming the decisionʼs factual competence.

How to Avoid It

• Consider contradictory evidence. Seek out and evaluate information that may challenge your existing beliefs and be open to its legitimacy.
• Start discussions. Talk with people who have a different set of experiences from your own to expose yourself to diverse perspectives.

Status Quo Bias

People prefer things to stay as they are already arranged or as they have previously been decided rather than to take action to change them. This preference remains even when the cost of action is low or the importance of the decision is high.

How It Derails

• When decision alternatives are being evaluated, status quo bias gives excessive weight to options already in place and will make it more likely that you will choose a suboptimal option.

How to Avoid It

• Explicitly outline options. Take the time to consider all possible options, giving them equal weight as you evaluate them. Imagine how you would rank and evaluate them if none were already in place.

Anchoring Bias

Anchoring is our tendency to give greater weight to the first piece of information presented to us on a topic at the expense of information presented later, particularly information involving numbers. All new information is immediately assessed in comparison with the first piece of information.

How It Derails

• When we become anchored to a particular number or option, we become reluctant to move too far away from this basis, even if that is what is called for.

How to Avoid It

• Critically evaluate the first data point. Challenge yourself to come up with reasons against the first number or option presented, then compare it with other options.

Decoy Effect

Related to anchoring bias is the decoy effect, in which expressed preference between two options changes when a third inferior option is presented alongside them. The decoy is significantly inferior to one option, but only slightly inferior to the second, making the second option more attractive.

How It Derails

• Introducing the decoy leads decision-makers to choose the second option at a much higher rate than they would when only the first two options are presented.

How to Avoid It

• Focus on needs. Prioritize your specific needs rather than being swayed by the perceived attractiveness of an option.
• Conduct pairwise comparisons. Establish your preferences when only two options are considered.

Framing Effect

People will make different decisions with the same facts solely on the basis of how that information is presented to them. For example, preference is given for the option that is “95% effective” rather than the option with “only a 5% fail rate.”

How It Derails

• The framing effect puts decisions in the hands of whoever is presenting the information rather than the preferences of the decision-maker. If this entity has different values or ulterior motives, decisions will be suboptimal.

• Individuals may be more willing to pay more for the same outcome on the basis of how the option sounds, leading to greater costs.

How to Avoid It

• Explain your choice. Going through the mental rigor of explaining the rationale behind your choice can uncover the framing effect and reduce its influence.
• Seek expert input. Studies have shown that framing has a greater effect the less familiar you are with a topic. Get expert input when evaluating decision options outside your sphere of expertise.

Halo Effect

Our associations about a person within a specific context, whether positive or negative, carry over into unrelated contexts, such as thinking a likable person is more skilled than an unlikable person.

How It Derails

• The halo effect leads us to ignore crucial facts related to the current situation, thereby compromising factual competence.

How to Avoid It

• Evaluate attributes separately. Assess qualities independently of other things you know about a person rather than letting one positive (or negative) aspect skew your overall impression.
• Make believe. Pretend that the same facts put in front of you about a person, company, or other entity were attributed first to an entity you like or respect and then to one you do not like. Did your instinctive decision change in the second case?

Self-Serving Bias

We are more likely to attribute our successes to personal attributes and our failures to external factors.

How It Derails

• Refusing to acknowledge mistakes makes us unlikely to learn from them in future situations or to properly adjust decisions when we face failure.

How to Avoid It

• Have compassion. Admitting failures is hard and uncomfortable. Remove harsh judgements from such mistakes so you can better accept them, learn from them, and adjust as needed.

Optimism Bias

We consistently overestimate the chances of good things happening to us and underestimate the chances of negative events.

How It Derails

• This bias skews our assessment of risk, increasing the potential fallout in uncertain situations.
• We may be more likely to ignore important information if it points to a negative outcome.

How to Avoid It

• Assess risks realistically. Make a habit of identifying potential downsides and planning for them.
• Review past outcomes. Reflect on past predictions to understand how often they were overly optimistic.

Authority Bias

We are more influenced by information when it comes from someone in a position of authority than when we receive the same information from someone without a title.

How It Derails

• In many cases, authority can be a marker of expertise and trustworthiness, but it can lead us to accepting information uncritically and missing signs of factual errors.
• This can also lead us to ignore key information from those without a title, thereby making our decisions less informed.

How to Avoid It

• Verify credentials. Before accepting an authorityʼs opinion, verify their expertise on the specific topic at hand and check for conflicts of interest.
• Consider diverse sources. Look for multiple viewpoints, especially on complex topics.
• Detach from the authority. Physically removing yourself from the authority figure lessens the strength of the bias. You can mentally detach yourself from them by imagining their words coming from a person without authority.

Bandwagon Effect

You evaluate an option to be better if more people are doing it.

How It Derails

• This bias overrides our ability to think critically about an issue.
• We may lose sight of the details that make an option right for others but that would not make it optimal for ourselves.

How to Avoid It

• Remove yourself. Distance yourself from peers or crowds you may be influenced by before you make your decision.
• Consider less popular options. Proactively evaluate options that go against majority opinion.

Loss Aversion

People tend to feel the sting of loss more acutely than they would the positive emotions from gaining something of the same value.

How It Derails

• Loss aversion leads people toward safer options at the expense of those that are potentially more optimal.
• Loss aversion is particularly acute in organizations, where it can lead to decisions that are more conservative and miss opportunities for innovation.

How to Avoid It

• Use the framing effect. If the potential loss of an option sparks anxiety, reframe the option in terms of its potential benefits. Holding both perspectives will help guide you to the right balance.
• Embrace the worst. While any loss will sting, imagine the worst that might come from an option. This puts “the worst” in perspective and lets you more rationally decide whether you or your organization could handle it.

Sunk Cost Fallacy

This fallacy is our tendency to think that we should continue investing time, energy, or resources simply because we have already invested a lot in a particular choice or effort.

How It Derails

• The sunk cost fallacy clouds our ability to see when it is time to end a particular effort.
• It can lead to “throwing good money after bad.”

How to Avoid It

• Mourn the loss. Pause and remind yourself that anything that has gone into the effort is gone. There is no way to recover it. Process this loss and move on to imagining the choices in front of you as if none of the past investments were made.
• Consider the worst. Project into the future what would happen and how you would feel if things keep going poorly. Will you look worse for accepting loss early, or for sinking more resources into a lost cause?

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