Tag Archives: planning fallacy

Debiasing Decisions: Combat Confirmation Bias, Overconfidence Bias

Philip Meißner

Philip Meißner

Cognitive and behavioral biases can contribute to “blind spots” in decision-making, leading to less effective outcomes.
To improve decision outcomes, University of Marburg ’s Philip Meißner, Torsten Wulf of HHL Leipzig Graduate School of Management and HEC’s Olivier Sibony proposed a systematic checklist to identify potential decision derailment based on bias, along with rapid remedies.

Torsten Wulf

Torsten Wulf

They argues that two types of bias contribute to most decisions that lead to undesirable results:

  • Confirmation bias, the unconscious tendency to believe new information that is consistent with existing beliefs and recent experiences, and to discount contradictory data,
  • Overconfidence bias, the out-of-awareness likelihood to overestimate one’s skills, insights, and judgment.
    This leads to increased risk-taking based on illusory sureness of the decision and ability to mitigate adverse outcomes.
Olivier Sibony

Olivier Sibony

Previously, Lovallo and Sibony articulated four related decision biases:

  • Pattern-recognition biases, countered by changing the “angle of vision,”
  • Action-oriented biases, mitigated by recognizing uncertainty,
  • Interest biases, minimized by explicitly highlighting these interests,
  • Social biases, reduced by depersonalizing debate.

Debiasing techniques such as checklists, can limit the negative effects of biases in decision-making by offering a disciplined, comprehensive analysis of downside risks and by systematically considering multiple viewpoints.

Atul Gawande

Atul Gawande

However, effectively implementing checklists requires consistent discipline, noted Harvard’s Atul Gawande, who cited examples of partial adherence leading to costly oversights and failures.

One approach, suggested by Princeton’s Daniel Kahneman and Gary Klein of McKinsey, is a “premortem.”
Decision makers imagine that the decision has failed and analyze sources and reasons for adverse outcomes, to more thoroughly assess points of failure and possible mitigation strategies.
Formal scenario-planning is another way to expose assumptions underlying a plan, as well as a competitor’s priorities and potential strategy.

Massimo Garbuio

Massimo Garbuio

Using a variety of debiasing techniques significantly increased the Return on Investment (ROI) in a study by University of Sydney’s Massimo Garbuio and Dan Lovallo and Olivier Sibony of HEC.
As a result, Michael Birshan, Ishaan Nangia, and Felix Wenger of McKinsey, argued that debiasing techniques should be embedded in formal organizational decision-making processes, particularly for high-impact, repetitive decisions.

Michael Birshan

Michael Birshan

Decision biases may be out of awareness, or unconscious, so it’s more effective to evaluate the process of developing a proposal, rather than focusing only on the content and merits of a proposal.

Decision-making safeguards can be built into standard analysis processes by including questions to expose:

  • Multiple data sources,
  • Diverse opinions and perspectives,
  • Downside risk,
  • Potential negative outcomes for company, industry, and broader ecosystem.
Daniel Kahneman

Daniel Kahneman

Proposals are considered ready for a decision only when multiple perspectives are available to mitigate confirmation bias and risk analysis is available to reduce overconfidence bias.
Responses to decision checklist questions can be quantified to indicate one of four action steps, according to Daniel Kahneman:

  • Decide, based on inclusion of robust safeguards against both confirmation bias and overconfidence bias,
  • Screening MatrixReach out, suggesting the need for gathering additional perspectives, opinions, and perspectives to prevent narrow assumptions to reduce confirmation bias.
    The Vanishing-Options Test, proposed by Stanford’s Chip Heath and Dan Heath of Duke University, can generate new ideas by imagining that none of the current proposals are available.
  • Stress-test, by conducting a pre-mortem or analysis by external devil’s advocate or provocateur to reduce overconfidence risk by.
  • Reconsider when both more perspectives and risk analysis are required to reduce both overconfidence bias and confirmation bias.
    This screening matrix helps reduce related decision-making biases:
  1. Self-interest Bias
    -To what extent is the proposal motivated by self-interest?
Ishaan Nangia

Ishaan Nangia

Recommendation
-Assess for over-optimism

  1. Affect Heuristic
    -How strong is the team’s emotional attachment to a specific proposal?
    -To what extent were risks and costs fully considered for both preferred and non-preferred options?

Recommendations
-Assess for strongly-preferred outcomes
-Reintroduce analysis of all options

  1. Groupthink
    -How many dissenting opinions were analyzed?
    -How adequately were all options explored?
    -Was dissent discouraged? 
Felix Wenger

Felix Wenger

Recommendations
-Encourage substantive disagreements as a valuable part of the decision process
-Solicit dissenting views from members of the recommending team, through private meetings

4. Saliency Bias
     -To what extent are decisions made based on a potentially incomparable, but memorable success?
     -What about the proposed analogy is comparable to the current situation?
     -What are relevant examples from less successful companies? What happened in those cases?

Decision Making QuestionsRecommendation
-Carefully scrutinize analogies’ similarity to the current decision situation
Solicit additional analogies using reference class forecasting:

.Select reference class,
.Assess distribution of outcomes,
.Intuitively estimate project’s position in distribution,
.Assess estimate’s reliability,
.Correct intuitive estimate.

  1. Confirmation Bias
    -What viable alternatives were included with the preferred recommendation?
    -At what stage in the decision analysis were alternatives discarded?
    -What efforts were undertaken to seek information to disconfirm the main assumptions and hypotheses?

Recommendation
-Request two additional alternatives to the main recommendation, including analysis of benefits and drawbacks
-Acknowledge unknowns, risks

  1. Availability Bias

    Max Bazerman

    Max Bazerman

    If you had more time to gather date, what information would you seek?, asked Harvard’s Max Bazerman
    -How can you access similar data now?

Recommendation
-Use checklists to ensure comprehensive analysis of data required for each decision type

  1. Anchoring Bias
    -What data sources are used to analyze decision?
    -Which data are estimates? By whom? If so, from which data were estimates extrapolated?
    -To what extent could there be:
  • Unsubstantiated numbers?
  • Extrapolation from non-equivalent previous situations?
  • Attraction to specific anchors?

Recommendations
-Present data from other sources, benchmarks, or models
-Request new analysis

8. Halo Effect
     -To what extent does the analysis team expect that a person, organization, or approach previously successful in one context will be equally effective in different situation?

Phil Rosenzweig

Phil Rosenzweig

Recommendations
-Question potentially inaccurate inferences
-Solicit additional comparable examples
-Question attributions of success and failure to leaders’ personalities instead of chance factors, advised IMD’s Phil Rosenzweig.

9. Sunk-Cost Fallacy, Endowment Effect
     -To what extent are recommenders attached to past decisions?

Recommendation
Disregard past expenditures when considering future costs and revenues

  1. Overconfidence, Planning Fallacy, Optimistic Biases, Competitor Neglect
    -To what extent is the comparison case unwarrantedly optimistic?

Recommendation
-Adopt an outside view by using relevant simulations or war games

  1. Disaster Neglect
    -To what extent is the worst case scenario realistically and sufficiently negative?
    -How was the worst case generated?
    -To what extent does the worst case consider competitors’ likely responses?
    -What other scenarios could occur?

Recommendation
-Conduct a premortem, suggested by Gary Klein of Applied Research Associates:  Imagine the worst case scenario occurred, then propose likely causes, mitigations   

  1. Loss Aversion
    -To what extent is the evaluation and decision team risk averse?

Recommendation
-Realign incentives to share responsibility for the risk or to reduce risk

  1. Planning Fallacy focuses only on the current case while ignoring similar projects’ history and statistical generalization from related cases.
    -To what extent does the analysis rely on “top-down, outside-view” comparisons to similar projects?
    -Did the evaluators use a “bottom-up, inside-view” to estimate time required for each step?

Recommendation
-Statistically analyze a broad range of similar cases to avoid over-estimates from “top-down, outside-view” approaches and underestimates from “bottom-up, inside-view”
-Differentiate accurate forecasts from ambitious targets

  1. Loss aversion
    -To what extent are evaluators more concerned with avoiding loss than achieving gains?
    – How concerned are evaluators with being held responsible for a failed project?
    -To what extent has the organization specified acceptable risk levels?

Recommendation
-Seek risk tolerance guidelines from organizational leaders.

Decision-making tools like checklists can significantly reduce unconscious biases, provided that they are consistently and systematically applied.

-*What strategies have you found most helpful in reducing biases in decision-making?

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Perceived Personal Power Can Modify Time Perception, Perceived Stress

Alice Moon

Alice Moon

People’s subjective experience of time differ based on individual characteristics, which can influence feelings of control over time and coping with time demands.

Serena Chen

Serena Chen

University of California Berkeley’s Alice Moon and Serena Chen evaluated more than 550 volunteers’ ratings of their perceived personal power and their perspectives on available time to accomplish goals.

Moon and Chen asked more than 100 participants to assume the role of a “manager” while sitting in a “high-power chair,” or the role of an “employee” while both groups rated their perceived personal resources of time and power.
Participants who played the more powerful role of “manager” reported that they had more time than “employee.”

Moon and Chen also primed more than 100 American adults to think of themselves in high-power or low-power positions, and asked them to rate statements about availability of time to achieve goals.

Even when participants did not actually have more available time, those who felt most powerful perceived greater control over their time, and greater time availability.
This is another example of the power of expectation exceeding the importance of an actual resource, competency, or experience.

Mario Weick

Mario Weick

These findings support other reports that managers experience less stress than subordinates in organizations, attributable to their “position power.”

Ana Guinote

Ana Guinote

People who feel powerful tend to hold a significantly optimistic bias when predicting time required to complete task, reported University of Kent’s Mario Weick and Ana Guinote of University College London.

They attributed this unrealistic optimism to
confident belief in personal self-efficacy accompanying subjective feelings of power in their evaluation of:

  • Actual power and time perception,
  • Induced feelings of power through priming,
  • Pre-existing personal self-perceptions.
Priyanka D. Joshi

Priyanka D. Joshi

This “planning fallacy” of underestimating task completion time often results from a narrow focus on the goal, coupled with the optimism bias that obscures potential obstacles and risks.

Nathanael Fast

Nathanael Fast

Likewise, people who feel powerful also tend to feel more confident about the future, more aware of their “future self,” and more willing to wait for longer-term rewards, found University of Southern California ’s Priyanka D. Joshi and Nathanael J. Fast.

Specifically, participants assigned to high-power roles and to power priming instructions were less likely to display temporal discounting, or choosing smaller short-term rewards over larger goals that require a longer waiting period.

This suggests that people who feel powerful have a sense of abundance in other domains, including time and money.
As a result, feeling powerful enables people to forego current rewards, “delay gratification,” and make present investments to achieve potentially larger longer-term pay-offs.

-*How do you increase your personal experience of power and time perspective?

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Still Fulfilling Your New Year’s Resolutions?

-*Did New Year’s Resolutions fade as quickly as the month of January?

Katherine Milkman

Katherine Milkman

If so, University of Pennsylvania Katherine Milkman has a recommendation to resume the good intentions toward goals: “Nudges”—small environmental interventions that can shift behavior to increase adherence to challenging commitments, whether at work or in personal life.

Hengchen Dai

Hengchen Dai

Milkman collaborated with Wharton colleague Hengchen Dai and Harvard’s Jason Riis to investigate “temporal turning points” – moments that feel like a new beginning, like New Year’s Day or beginning a new job or school.

Jason Riis

Jason Riis

Milkman, Riis, and Dai reported several examples of the “fresh start effect”:  They found that the number of online Google searches for the term “diet” increase following temporal landmarks like the beginning of a new week, month, year, or semester; a birthday or a holiday.
The largest increase—82% above the baseline—occurred immediately after New Year’s Day for nine years they studied.

Similarly, the number of gym visits of 12,000 undergraduates over 18 months increased in January, then declined, with smaller increases at the beginning of each week, each month, and each term.

 This pattern also occurred among 43,000 participants in a goal-setting website, stickK, over 30 months.

Members can set goals and contractually agree to consequences for failing to attain them, such as community sanctions to monetary payments to disliked organizations.
The greatest number of contracts—145% above the average rate—were signed at the beginning of the New Year, and more contracts were signed at the beginning of each week.

Richard Thaler

Richard Thaler

Commitments to pursue and return to goals increase after these “notational boundary,” described by Richard Thaler of University of Chicago.
A temporally-triggered “fresh start” can compensate for limited willpower and persistence by giving people a chance to restart their commitments.

Besides “temporal turning points,” self-designed “nudges” can be contingency plans for a specific corrective action when confronted with the temptation to deviate from the goal path: “Whenever situation x arises, I will initiate the goal-directed response y.”

Peter Gollwitzer

Peter Gollwitzer

New York University’s Peter Gollwitzer calls these mitigation plans “implementation intentions,” which result in better adherence to goal-directed efforts when developed before tempting situational cues.

Stephen Ciccone

Stephen Ciccone

The stock market’s “January Effect” of better-than-average performance early in the year may result from the “fresh start” phenomenon, although Stephen J. Ciccone of University of New Hampshire argues that it may be more affected by investor optimism and the “false hope syndrome.”

Janet Polivy

Janet Polivy

University of Toronto’s Janet Polivy and C. Peter Herman describe the “false hope syndrome’s” unrealistic expectations about the likely speed, amount, ease, and consequences of self-change attempts, and subsequent disappointment of these optimistic aspirations.

Ciccone found that investor sentiment, as measured by the University of Michigan’s Index of Consumer Confidence, peaks in January and suggested that optimistic bid up stock prices of firms with higher levels of uncertainty.

C. Peter Herman

C. Peter Herman

Typically, these firms are unable to meet the optimistic expectations, and disappoint investors when they under-perform.
However, this pattern continues each year, probably due to the combined impact of  “fresh start effect” and the “false hope syndrome.”

Unrealistic optimism has been well-documented in overestimates of personal abilities, future performance and the impact of achieving goals, as well as underestimates of the time and effort to achieve goals.

Jeffrey Jensen Arnett

Jeffrey Jensen Arnett

Jeffrey Jensen Arnett of Clark University found that both 200 adolescents and more than 200 adults held optimistic biases regarding the risks of smoking even though the strong majorities of smokers and nonsmokers in these groups agreed that smoking is addictive and causes death for “most people” who smoke.

However, the adolescent and adult smokers doubted that they would die from smoking even if they smoked for 30 or 40 years, and most adolescents believed that they “could smoke for a few years and then quit.”

Roger Buehler

Likewis Roger Buehler

Likewise, most people underestimate time required to complete tasks, called “planning fallacy”  by Wilfred Laurier University’s Roger Buehler, Dale Griffin of University British Columbia and University of Waterloo’s Michael Ross.

Dale Griffin

Dale Griffin

They found that 465 volunteers:

  • Underestimated their own but not others’ completion times for academic and nonacademic tasks
  • Focused on future plans rather than comparing with similar past experiences when making completions time estimates
  • Attributed their past errors in predicting completion times to external, transient, and specific factors, implying less personal accountability for misjudgments.
Mike Ross

Mike Ross

Volunteers were able to eliminate their bias toward inaccurately optimistic estimates when they explicitly considered connect relevant past experiences to inform current estimates.

Fiona Jones

Fiona Jones

The optimism bias can be reduced by setting modest, attainable goals, according to University of Leeds’ Fiona Jones and Adrian Coggins with Peter Harris of University of Sussex and University of Hertfordshire’s Hilary Waller.

They compared 119 volunteers’ expectations about their participation in a twelve-week-long exercise course and their actual attendance, and found that participants who set smaller goals were more likely to achieve and maintain the goal behavior over time.

-*How effective are “temporal turning points” to initiate and re-start positive behaviors toward your goals?
-*How do you guard against optimism bias and “false hope syndrome” in planning and executing toward your goals?

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