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Architecture, Bidding, Presentation Tips, Winning New Business

Psychology of Business – Bad Decisions – or why we get things wrong



As human we aren’t as rational as we hope we are. So understanding our biases makes us more effective.

Here are 10 ways we get things wrong, and ways that effects how we present ourselves.

Confirmation Bias is where we look for information to support what we believe to be true, and ignore the opposite.

Real life example – an architect came out of a presentation where the client had been relentlessly scathing about his design. But what did he remember? The ONE thing they had liked.

Availability Heuristic.  This tells us that we take too much notice of things that stand out. The classic is we worry about sharks at the beach but are probably millions of times more likely to be killed in a road crash on the way to the beach. As an addition to this, we seem as humans to put far too much faith in anecdote. A simple story that illustrates how you behave as a business may have more weight  than all the data.

The Optimism Bias is a great thing about humans – we are deeply optimistic about outcomes. Which is great unless you are sitting with Captain Scott in a tent in the Antarctic….

Add this to Confirmation bias and you have a recipe for disaster.

The Planning Fallacy follows from the Optimism Bias. If we are optimistic about something we will not plan enough time to complete it.

Real life examples – it’s the night before the bid is delivered – it’s 4.30 AM. You are at your desk. That’s the Planning Fallacy.

As an aside – if you want to know how much time something will actually take, ask someone who is a true pessimist.

The Halo Effect is attributing judgements about things due to unrelated attributes. Or, thinking that good-looking people are cleverer than they are. (And we do). But works both ways. So in presentations you want to communicate a positive approach to everything. Doom mongers and worriers will infect how people see you.

The Just-World Phenomenon is the belief that we live in a logical well-ordered world where outcomes are the consequence of an almost scientific process. This is particularly demonstrated in bidding where after the client has chosen one of two teams they will rationalise their decision as an almost inevitable result of a logical process. Yet large bids are often won and lost by a fraction of a percentage point. Is it possible the decision was really made by deciding which people they liked more, and then rationalising it afterwards?

Endowment Effect is the simple idea that people value what they have more than what they don’t have. So shifting an incumbent from a contract will always be harder than hanging onto it. Real life example – when we dislodged an incumbent the feedback was “We really liked your new, fresh approach” Our tag line? We have a new, fresh approach. If you want to change people’s minds you have to have a strong story to tell.

Self-Serving Bias goes to the heart of why we make bad decisions, or good decisions for the wrong reasons. When we succeed we take the credit. When we fail we blame others.

A difficult area for a presentation specialist because it is really easy for a client to think a great presentation was down to him, but a bad one was your fault.

Hyperbolic Discounting  Or, jam today. We like our rewards NOW. We don’t like to wait. Give me a snack now, I can’t wait for dinner.

So stress the early wins of what you are selling. Whole-life cost is all about jam tomorrow.

Bias Blind Spot.  Here come our ego again. We nearly all rate ourselves above average at pretty much anything. Which can’t be true…..

So add it altogether, it’s a nightmare of optimistic self-delusion!

Or put it another way, while optimists are great to have around, if you want to know what’s really going to happen, ask a pessimist.

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About gristpresent

Presentation, Q&A and Engagement Coach. We help you win more business. Also BAFTA-winning film maker. See our new site www.grist.co.uk

Discussion

6 thoughts on “Psychology of Business – Bad Decisions – or why we get things wrong

  1. Fascinating. Ideas that apply to coaching ourselves and coaching others.

    The Availability Heuristic caught my eye. Could this be partly responsible for why inexperienced presenters convince themselves of the most awful potential doom scenarios if they take to the stage, and in the process of fixation lose track of prepping for the myriad smaller but more realistic dangers they should be checking?

    Posted by Peter | July 1, 2012, 9:06 pm
    • Yes. We are really bad at assessing risk. So we worry too much about extreme risks. But, there is justification – the severity of the consequence.
      So we do an average presentation? No one dies. But what if we dry? What if we get confused? What if we get something badly wrong? Disaster? Demotion? Sack? Failure?

      This thought occurred to me as I walked up a narrow, turning staircase in our house in the dark. I always feel slightly creeped-out by that point. I was musing on why I should be uncomfortable about something so unlikely and I sudden revalation. I was saying to myself “Yes it’s incredibly unlikely that there is a murder/faceless man/ ghost round this dark corner, but what if there was? Think how bad that would be!
      So my conclusion was that we are incredibly sensitive to severity.

      Or in public speaking terms, I’d rather be dull than run the risk if failure.

      What we know as professionals is that I’d you do the work you eliminate the risk of failure and instead run the risk if being really great.

      Posted by Anonymous | July 1, 2012, 9:28 pm

Trackbacks/Pingbacks

  1. Pingback: Optimism vs pessimism in selling « TheBuiltEnvironment - March 15, 2012

  2. Pingback: Architects – Don’t take “Yes” for an answer « Grist Present - May 24, 2012

  3. Pingback: When dealing with clients, don’t take “Yes” for an answer « Grist Present - June 22, 2012

  4. Pingback: How to make a mistake – stop digging « Grist Present - August 6, 2012

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