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Psychology for Leaders: 38 Point Cheat Sheet

        posted by , December 12, 2012

A cognitive bias is a pattern of human behavior and decision making that appears to be illogical.

Humans are social beings with complex behavior patterns. We commonly make decisions that are logically incorrect because of our biases.

Recognizing cognitive biases in yourself and others is key to critical leadership activities such as decision making, motivation, negotiation and influence.


Example of a Cognitive Bias



Psychologists have identified a wide range of common biases that can be reproduced again and again with simple social experiments.

In one such experiment people were asked to estimate the following math problem:

1 x 2 x 3 x 4 x 5 x 6 x 7 x 8

The average estimate was 512. When asked the same question written like this:

8 x 7 x 6 x 5 x 4 x 3 x 2 x 1

The average estimate was 2,250.

The reason is that 8 x 7 x 6 x 5 x 4 x 3 x 2 x 1 kind of looks like 87,654,321. That's a much bigger number than 12,345,678.

People use social and logic heuristics (approximations) to make decisions and complete tasks. While these may appear illogical, they may also be key to our identity as humans.

In other words, biases aren't necessarily bad. They're just illogical.


38 Biases & Behaviors Every Leader Should Know



A firm understanding of biases can help you to influence people. Biases also hold the key to reducing risk and human error.

Understanding your own biases will improve your decisions.

The following biases tend to have a critical business impact.


1. Halo Effect

The tendency to think that someone who is great at one thing is great at everything. The opposite also applies, there's a tendency to think that someone who is bad at one thing is bad at everything.

Impact
personal branding, hiring

Guidelines
A few strong skills will improve your reputation. Avoid over estimating someone based on a single strong skill.


2. False Consensus Effect

People tend to overestimate how much other people agree with them.

Impact
communication, influence

Guidelines
Ask for confirmation that people agree.


3. Illusion of Asymmetric Insight

People commonly believe that they understand their peers better than their peers understand them.

Impact
communication, influence

Guidelines
Avoid quick assumptions about people.


4. Dunning–Kruger Effect

Incompetent individuals may be too incompetent to know that they're incompetent.

Impact
hiring, performance management

Guidelines
It's not always possible to trust an individual's assessment of themselves. Your best people may underestimate themselves. Under performers may overestimate themselves.


5. System Justification

The tendency to strongly defend the status quo and resist change.

Impact
decision making, managing change

Guidelines
Never underestimate resistance to change. Innovative thinking is rare.


6. Hostile Attribution Bias

The tendency to view secretive behaviors as hostile. Also applies to perceived secrecy.

Example
The boss sees 3 of her staff having a meeting that she wasn't informed of — she assumes they're plotting against her.

Impact
office politics, corporate communications

Guidelines
Resist the urge to be overly paranoid. Ensure that you are fully transparent.


7. Naive Cynicism

Overestimating the egotism of others and underestimating your own egotism.

Example
My boss is so self obsessed, I can't believe she didn't complement me on my presentation.

Impact
interpersonal relationships, office politics, influence

Guidelines
People easily feel that leaders are self-centered. Giving deserved praise is a powerful motivator. People prefer criticism to no feedback.


8. Fundamental Attribution Error

The tendency to explain other people's behavior by personality but to explain your own behavior by circumstances.

Example
If you trip over a rock it's because you're clumsy, if I trip over a rock it's because of the position of the rock.

Impact
interpersonal relationships, office politics, performance management

Guidelines
Fairly evaluate both circumstances and behavior. If someone isn't performing — is there something standing in their way that you can clear?


9. Illusion of Transparency

Overestimating other's ability to understand you and your ability to understand others.

Impact
communication, public speaking, active listening, influence

Guidelines
Over communicate to ensure your message gets across.


10. Optimism bias

Overestimating the impact of your plans.

Impact
strategic planning, project management

Guidelines
A realistic or pessimistic viewpoint breeds better projections and estimates.


11. Ingroup Bias

The tendency to place more value on information that comes from someone you perceive as being in the same group as you.

Even seemingly trivial commonalities such as cheering for the same sports team can have a large effect.

Impact
communication, intercultural communication, influence

Guidelines
Identify commonalities with people to enhance your influence. Be fair to outsiders with worthy ideas.


12. Outgroup Homogeneity Bias

The tendency to think that members of other groups are similar to one another but that your group is diverse.

Example
All Manchester United fans are the same.

Impact
communication, intercultural communication, influence

Guidelines
Don't underestimate diversity.


13. Ultimate Attribution Error

The tendency to assign too much significance to group membership over individual traits.

Example
She's an effective leader because she went to Harvard.

Impact
communication, intercultural communication, performance management

Guidelines
Evaluate at the personal level, it's more accurate than making assumptions. Just because the last person you hired from Harvard was a top performer, doesn't mean everyone from the same school will perform similarly.


15. Ambiguity Effect

The tendency to avoid choices that involve ambiguity.

Fear Uncertainty and Doubt
Fear Uncertainty and Doubt is a sales tactic in which a salesperson implants doubts in the minds of prospective customers about a competitor.

For example, a large software vendor may make a comment that open source violates patents. The information doesn't need to be true to influence the customer. Creating doubt is enough.

Impact
decision making

Guidelines
Don't fear uncertainty, evaluate with the information you have. Recognize attempts to manipulate your fear instincts.


16. Anchoring

Placing too much weight on a single piece of information.

Example
If you ask participants the following question:

Is the average annual temperature warmer or colder than -25°C (-13 °F) in Antarctica?

Over 40% will say colder.

If you rephrase the question:

What is the average annual temperature in Antarctica?

Less than 10% of participants choose a temperature below -25°C (-13 °F).

Participants try to use information from the question to solve the problem rather than thinking for themselves.

Impact
problem solving, strategic planning, decision making

Guidelines
Avoid letting insignificant information influence you.


17. Rosy Retrospection

People remember past events as being better then they were.

Example
If you ask people to rate their vacation experience during the vacation they will rank it lower than if you ask them a week after it ends.

Impact
decision making, surveys, lessons learned

Guidelines
Survey timing influences results. Avoid the tendency to repeat the same mistake twice due to a rosy view of the past.


18. Irrational Escalation

Throwing good money after bad.

Increasing your investment in something in hopes of recovering previous investments that are already lost.

Example
A investor buys a stock. The next day it drops 50%. The investor experiences a strong urge to buy more to try to recover what he lost.

Impact
investment, strategy, decision making

Guidelines
Forget about sunk costs.


19. Loss Aversion

Asking for more to give something up than you would be willing to pay to buy it.

Example
A man puts his house on the market for $500,000 firm. No one buys it for over a year but he keeps the price where it is. He himself wouldn't pay $500,000 for the house (if he were the buyer).

Impact
compensation, negotiation, pricing

Guidelines
Look at your prices from the perspective of the buyer.


20. Time Discounting

The tendency to prefer immediate rewards over future rewards, even if future rewards are far greater.

Example
Many organizations are unable to execute effective long term strategies because key staff are focused on short term incentives.

Impact
strategic planning, program management, compensation

Guidelines
Ensure that staff have effective long term incentives.


21. Ludic Fallacy

A tendency to oversimplify probabilities.

Example
A young woman is offered a job interview. She calculates that she only has a 5% chance of getting the job. She looks at the salary and figures that a 5% chance at the salary isn't worth her effort.

She fails to incorporate hundreds of significant variables in her calculation. For example, the interview can bring her valuable experience even if she doesn't get the job.

Impact
business cases, strategy, financial projections

Guidelines
Avoid oversimplifying decisions.


22. Attribute Substitution

Solving a complex problem by substituting a less complex problem that appears to lead to the same result. A frequent source of logical errors.

Example
A coffee and donut together cost $6. A coffee costs $5 more than the donut. How much does the donut cost?

Many people incorrectly answer $1. They substitute the easy problem of $6 - $5 rather than thinking about the real answer.

Impact
problem solving, decision making

Guidelines
Use care solving complex problems with a simple analogy. This approach often fails.


23. Bizarreness Effect

People are more likely to remember unusual things that stand out.

Impact
presentations, public speaking, personal branding

Guidelines
Character, humor and oddness get you (and your ideas) remembered.


24. Generation Effect

You are more likely to remember ideas that you generate over similar ideas communicated by other people.

Impact
training and learning

Guidelines
You'll understand a topic better if you teach it to others.


25. Zero Risk Bias

Preference for reducing a particular risk to zero while ignoring larger risks.

Impact
risk management, decision making, marketing

Guidelines
A balanced risk approach is preferable.


26. Texas Sharpshooter Fallacy

Finding patterns in random information that don't exist.

The name Texas Sharpshooter Fallacy comes from a joke about a sharpshooter who shoots up his barn. When he's done he paints a target centered around the spot he hit the most.

Impact
decision making

Guidelines
People tend to be quick to see patterns where there are none. Don't let this cloud your judgment.


27. Risk Compensation

The tendency to take more risk when perceived safety increases.

Example
Drivers became more reckless with the introduction of seatbelts and antilock brakes.

Impact
risk management

Guidelines
Avoid overconfidence in risk management efforts.


28. Reactive Devaluation

Rejecting an idea because you suspect it's from your enemy.

Example
At the height of the cold war, Americans were asked their opinion about a nuclear disarmament proposal.

When told the idea came from Ronald Regan, 90% were in favor of the proposal.

When they weren't told where the idea came from 80% were in favor.

When they were told the idea came from Mikhail Gorbachev only 44% were in favor.

Impact
office politics, negotiation, influence

Guidelines
Where an idea originates is as important as its content. There are several common strategies to deal with this phenomena. For example, it's often better to make it appear that your ideas are coming from a third party such as a consultant.


29. Reactance

The urge to do the opposite of what someone wants you to do if you sense they are trying to restrict your freedom of choice.

Impact
office politics, negotiation, influence, motivating employees, marketing

Guidelines
The key to motivating employees and influencing people is to present choices and not back people into a corner. Customers also appreciate freedom of choice.


30. Malicious Compliance

Enforcing rules in an attempt to cause damage.

It's well known that flexibility in rules is key to productivity and customer satisfaction. When employees become disgruntled they can use strict enforcement of rules to deliberately anger customers or cause processes to break down.

Impact
managing people, process design, customer satisfaction

Guidelines
Create a flexible culture in which employees are expected to think. Hold employees accountable for inflexible, moronic application of rules.


31. Illusion of Control

The belief that you can have influence or control something when you can't.

Example
Many gamblers believe they can influence their chances of winning the lottery by finding lucky numbers.

Impact
strategic planning, decision making

Guidelines
Recognize market conditions that are out of your control — it will improve your decisions.


32. Ostrich Effect

A tendency to pretend that risky financial situations do not exist.


Example
People check their investment less frequently in bad markets.

Impact
risk management

Guidelines
Denial isn't an effective risk management strategy.


33. Normalcy Bias

The refusal to plan for a event that hasn't happened before (despite evidence it will happen).

Normalcy bias explains an inability to cope with disasters. People have a tendency to ignore the situation.

Impact
risk management, business continuity planning

Guidelines
Expect resistance to risk management for systematic risks that occur infrequently.


34. Mere-exposure Effect

The tendency to develop a preference for things just because you are familiar with them.

Example
The Mere-exposure Effect is the basis for most advertising spending.

Customers are more likely to buy a product simply because they've heard of it (even if they haven't heard anything good about it).

Impact
marketing, influence, decision making, public speaking

Guidelines
You can sell ideas and products simply by making people familiar with them.


35. Proof by Example

People tend to believe that meaningful probabilities can be determined from a few examples (small sample sizes).

Example
A golden retriever bit me. Therefore, golden retrievers are a dangerous breed of dog.

Impact
decision making, influencing

Guidelines
Avoid overestimating the significance of examples. Examples are a powerful way to influence.


36. Illusion of Validity

The tendency to prefer weak but consistent evidence over strong evidence that has an inconsistency.

Example
Researches show two report cards to participants:

A A A C C A

B B B B B B

Participants are asked which student has a higher grade point average. Most incorrectly select B B B B B B.

Impact
decision making, influence

Guidelines
Make decisions based on strong evidence. You'll gain more influence with a weak argument that's consistent than a strong argument that appears inconsistent.


37. Hindsight Bias

Hindsight is 20/20. People fail to recognize how difficult historical choices were because they know how things worked out.

Impact
decision making, strategic planning, lessons learned, performance management

Guidelines
Avoid underestimating the difficulties associated with decision making.


38. Decoy Effect

Adding a bad choice to a list of options influences people's decision.

Example
A price list for software:

5 seat licence $50,000
10 seat licence $90,000
12 seat licence $150,000

By adding a ridiculous and obviously bad choice to a price list you can influence your customers to make a decision faster. You can also influence their choice.

Impact
marketing, influencing

Guidelines
Adding a bad choice to your price list can cause customers to make purchase decisions faster. The same strategy can be used as a persuasion tactic.

This is the 8th in a 9-part series of posts called how to win at leadership.


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This 9-part series provides you with concrete direction that’ll have you giving magnetic presentations in no time.

Decision making tips, strategy and techniques.

This list can be used by MBA graduates working on their resume, by hiring managers who are interviewing MBA graduates or by perspective MBA students who are evaluating graduate programs.

Project management is a high stakes profession.


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