On our January 16, 2013 blog, we gave an overview of cognitive bias (our tendency to filter information through our own past experiences, likes, and dislikes) and surmised that it can lead to faulty judgments. So much of positive leadership hinges on good decision making, which, of course, affects company culture and workplace happiness. So, let’s expand the discussion.

In the fourth of our series, I am going to talk about the Anchoring Bias. This bias is the tendency to favor a piece of information and “anchor on” or favor that information when making decisions, even though it may have no logical relevance to the decision at hand. With the Anchoring Bias, the information becomes our reference point to evaluate and make decisions. And, as you might guess, this can lead us astray.

One illustrative example is a series of studies that were done in the Real Estate industry. In these studies, before touring a home, appraisal agents were broken into four groups. Each group of agents were given information about the home including a standard MLS listing sheet and comparable prices of houses in the area. The twist is that each of the four groups saw a completely different listing price. After touring the home, they were asked to write the appraisal and then list the factors that went into their pricing. As you might have guessed, the listing price they saw prior to the tour significantly affected the appraisal price…the higher the listing price, the higher the average appraisal price. And these agents weren’t even generally aware of this effect. When asked to list the factors that were important to them in pricing the property, only 8% said that listing price was a top-three consideration.

So what is a leader to do to minimize the Anchoring Bias?

1. Remember experience is important.  But don’t overestimate historical information as a predictor to a successful outcome. Stop to ask yourself if history is relevant from time to time.
2. Watch out for the classic “business-as-usual attitude” during changing conditions.
3. Stop every once in a while, employ a blank slate, and really look at a problem.
4. Check for anchoring in your budgetary processes. For instance, in new markets, clean slate thinking could help.
5. Expand the team to people who can bring fresh eyes to assess and share their opinions to gain better perspective. This is good for teambuilding as well.

We hope that was helpful.  What did we miss?  We’d love to hear some of your tips to avoid anchoring.

Cognitive Bias

What is cognitive bias and what the heck does it have to do with leadership? A cognitive bias is our tendency to filter information through our own past experiences, likes, and dislikes. This means we have a tendency to make judgments that are faulty…and faulty in predictable ways. Of course anything that affects our judgments and decision making will ultimately affect our ability to effectively lead. In this blog, I am going to give a quick definition of some of the cognitive biases to be aware of in the workplace. The following could significantly impact on your organization:

1. Negativity Bias – the tendency to give more weight to negative information than positive information.
2. Confirmation Bias – the tendency to search for or interpret information that confirms what we already think or prefer.
3. Anchoring Bias – the tendency to favor a piece of information and “anchor” or rely too heavily on that information when making decisions.
4. Illusion of Control Bias – the tendency to overestimate your degree of influence over other external events.
5. Bandwagon Bias – the tendency to believe things just because many other people do….think herd behavior here.
6. Mere-exposure Bias – the tendency to prefer things because people are familiar with them.
7. Irrational Escalation Bias – the tendency to justify more investment based on the investment made prior, regardless of any new evidence that might suggest the decision wasn’t the best path.
8. Status Quo Bias (or System Justification Bias) – the tendency to like things to stay relatively the same and avoid change.
9. In-group Bias – the tendency to view your own group or department as superior to another.
10. The Spacing Effect Bias – the tendency for people to better recall information if it’s repeated over time instead of occurring once or having happened “grouped together” in time.
11. Forward Bias – the tendency to create models based on past data, which are validated only against that past data.

I am sure you are already starting to get the picture on how cognitive biases can affect decision making in your organization. Be sure to stay tuned as we expand on each of the cognitive biases above in this blog series.