Differentiating fact from fiction

Why we’re vulnerable to spin

In my previous post, I discussed the critical importance of telling stories, whether directly or indirectly, to bring life to your brand and attract potential customers. Humans live and breathe stories, over time building narratives about the external world and themselves that in varying degrees are always subjective and distorted.

So, how do we tell the difference between justified belief vs. baseless opinion that can lead to disastrous decisions in our business and personal lives?

Why we make so many false assumptions

We humans prefer simple, over complex (and more accurate) maps of reality because too much information overwhelms us. In our defense, we have no choice but to filter out most of the information that floods our senses at any given moment. Unfortunately, simple, if inaccurate, concepts about other people, social reality, including business matters, are easier on the brain.

  • We relate most easily to stories about reality that we have heard the most often, especially those we subconsciously invest in over time. Though we quickly recognize things that are dramatically different from what we are used to, we first try to process them using our long established, if inaccurate, maps of reality.
  • Our selective perception has many other implications, e.g., noticing the shortcomings of others much more readily than we recognize our own flaws or those of our best friends. –So, inevitably, we filter out important, useful information about people.
  • Reinforcing that dynamic, fear of the unknown compels to make sense of and to derive meaning from what is happening. If incoming information is sparse or ambiguous, again, we superimpose our old stories to explain what is happening. To fill in information gaps, we make quick, easy assumptions that we believe are based on objective reality.
  • This can result in prejudicial stereotypes and other inaccuracies—including assuming we know what others are thinking. This can be a fatal error, especially in cross-cultural business negotiations. And, because memory formation is unreliable, we forget the things we have made up to ‘fill in the gaps.’ Because memories become increasingly unreliable over time, we distil things down to a few key elements, often forgetting what in retrospect were the most important lessons learned.

Overconfidence, anchoring, & choice supportive bias

So far, I described how cognitive biases result in our making false assumptions that lead to bad decisions. I discussed the most frequently cited culprit, confirmation bias-i.e., seeking out information that supports our beliefs and dismissing even the most compelling facts that would lead us to question them.

This installment provides an overview of three of the most common sources of bias. – Again, the underlying reason for our so often choosing fiction over fact is simple: We humans prefer an uncomplicated over a complex (and more accurate) map of reality. This is because we can easily be overwhelmed by too much information. In our defense, we have no choice but to filter out most of the information that floods our senses at any given moment. Unfortunately, simplistic, inaccurate, assumptions about social reality, other people, including business issues, are easier on the brain.

Being aware of these sources of cognitive bias can advance your career

As online and other information explodes, employees with critical thinking skills make better decisions. At the same time, they can educate those of higher rank on critical facts otherwise ignored or discounted.

Before making an important decision, ask yourself whether
you’re adversely influenced by any of the following three kinds of bias-

  • Overconfidence Bias (aka, the Dunning-Kruger Effect)

Some level of confidence is necessary to get out of bed in the morning! However, those who rely on gut-level hunches instead of considering sage advice from well-informed sources are at much greater risk of failure than they realize. –Entrepreneurs are more likely to fall into this category than the general population. We are all are familiar with the stories of heroic entrepreneurs who overcame incredible odds to establish successful enterprises. However, we seldom hear about those who consistently fail.

Conversely, highly skilled individuals are more likely to underestimate their relative competence, assuming incorrectly that others are more capable than they really are. Employees with this characteristic often get frustrated with their coworkers for what they interpret as lack of commitment to task, when, in reality, they are struggling to perform at an acceptable level.

  • Anchoring

An individual or team that relies too heavily on initial information about an issue will interpret all subsequent data with that ‘anchor’—regardless of whether the newer information is more credible or not. A good example of this is the ‘anchor price’ we see for a product or service. It may, in fact, be an ‘outlier’—, i.e., significantly higher or lower than the median cost.

  • Choice-Supportive Bias/Endowment Effect

Choice-Supportive Bias reveals why we tend to ascribe positive qualities to what we invest in. Marketers leverage this bias to their advantage, viewing it as ‘building brand loyalty.’ It explains, for example, why people continue to buy the same kind of car for decades regardless of what Consumer Reports may say about it. Bottom line– positive attributes are overestimated, and negative attributes are underestimated.

This bias is parallel to ‘the endowment effect, i.e., placing a higher value on things we own than others do, e.g., an article of clothing, a piece of furniture. So, when you see something on eBay, understand that the owner often has an inflated concept of its value.

Making good decisions requires a careful, often painfully honest assessment of all the facts. Without an objective understanding of the variable odds of success for different decisions, we risk failure.

The following two sources of decision-making bias round out this Insights series-

Social desirability bias

Critical business decisions often require background survey research on one’s current customers or, perhaps, assessment of an entirely different demographic you want to target for a new product. All surveys, however, needs to correct for ‘social desirability response bias.’ This is the tendency of respondents to provide answers that they believe are more socially acceptable. This dynamic involves over-report affirming, positive reactions and under-report what is perceived as less socially acceptable behavior or beliefs.

This underlying bias can also adversely affect the accuracy of information solicited from employees in one-on-one or group situations. Unless the leader/decision-maker clearly communicates that they want genuine, impartial feedback (and not support for a decision others may easily assume they just want ‘rubber stamped’) people will not respond honestly.

This is why survey and spoken queries need to avoid-

  • Leading questions, e.g.,—”Should concerned parents enroll their children in pre-school?” Instead, this is better phrased as-“Do you believe preschool is a good option for your children?”
  • Loaded questions, e.g., “Where do you enjoy drinking wine?” Instead, first ask whether the respondents drinks wine, to begin with, and let them skip over the question if they don’t.
  • Double-barreled questions, e.g., “How satisfied or dissatisfied are you with your current job and income.” (Two different questions calling for two different responses).
  • Embedding absolutes in questions, e.g., ‘always, ever,’ etc., e.g., “Do you always eat lunch.” Instead, ask-“How many days a week do you eat lunch?”

Irrational escalation

Many folks have a tendency to invest emotionally in a decision, regardless of the outcome. This is also known as ‘the gambler’s fallacy.’ So, after investing heavily in a stock that tanks some investors will immediately reinvest in another ‘recommended’ stock without doing any due diligence.

Preventative strategies include-

  • Taking time before pulling the trigger by carefully researching the pros and cons of ‘escalating,’
  • Brainstorming at least three potential outcomes for any decision based on an in-depth analysis of all available information. This opens a person’s awareness to a wider range of variables that may come into play.
  • Actively seek out information that contradicts your assumptions.—This is the best defense against both irrational escalation and confirmation bias.
  • Add new potential outcomes after you’ve completed this process to give you the broadest possible understanding of your options. If the evidence supports postponing a decision, make sure to repeat the three above steps to factor in future changes before follow through.