Step Up: Lead in Six Moments that Matter by Henry Evans & Colm Foster

Author:Henry Evans & Colm Foster
Language: eng
Format: mobi
Publisher: Wiley
Published: 2014-03-25T18:30:00+00:00

Cognitive Biases

As we saw earlier, one problem in our perception of reality is that we don't take in all of the available data in forming our impressions. The second feature of our mental makeup that protects us from experiencing two conflicting feelings is called cognitive bias. This simply means that we are highly selective about what information we choose to focus on. We opt for data that confirm our mental models, and we ignore or dismiss data that challenge them.

One MIT researcher has estimated that we process only one-trillionth of the information available to us.5 We establish and reinforce a simplified model of the world around us, a model that operates without our conscious awareness, and it takes effort to be open to new possibilities that challenge this model.

Harvard professor Michael Roberto examined the climbing disaster on Mount Everest in 1996 as an illustration of how cognitive biases can impair decision making and problem solving. Five of the eight-person climbing party, including experienced guides Bob Hall and Scott Fischer, lost their lives on Everest, having failed to successfully descend the mountain.

Roberto contends that several cognitive biases were in play and contributed to errors of judgment on the fateful day. One type of bias was the failure to ignore sunk costs. In other words, the climbers felt that because they'd come so far, they had to keep going. They passed the point where they had to turn back to ensure a safe descent and felt that they couldn't abandon their quest for the summit. Errors of this nature occur all the time in business; clients often refuse to cancel a project because of the time and effort they've already put into it. However, contrary to common practice, the only rational bases for deciding to persevere with a project are future cost and future benefit.

The second issue that Roberto identified is overconfidence bias, which is the tendency for people to overestimate their ability to deliver. Fischer and Hall thought they had cracked the code to Everest and could get any reasonably fit person to the summit and back down safely. We saw a number of clear examples of overconfidence bias in the 1990s when several Western fast-moving consumer goods brands entered China trying to deploy their existing business model. Most organizations failed miserably early on and had to radically change their approach in order to be successful in that market. A business school professor we knew said that the only investment banker who profited from China in the 1990s was the one who missed the plane—meaning that every banker who invested in China lost money!

The third issue Roberto identified is recency bias, which is the tendency to overvalue recent events. The past three summers had been mild on the mountain, causing people to forget just how brutal the weather on Everest could be. We often see clients failing to learn the lessons of the past by thinking that the recent past is a better predictor of the future than the medium- or long-term past.

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