BW Businessworld

Biases Of Human Mind

Good business transactions are often a product of tackling implicit cognitive biases rather than sound analytical rigor

Mehak Banerjee, an experienced MBA from a leading business school, walks into a discussion with a large vendor. Her vendor asks for a ridiculous commission to do business with her company.

Although she is well trained to handle such situations, how can she effectively bargain while maximizing value for her company?

Most conventional education systems lay primary emphasis on left brain dominated analytical intelligence. Good business transactions are often seen as a product of sound analytical rigor, numerical intelligence, fact-based negotiation, etc. In reality, however, it is the non-analytical brain that dominates interactions, professional and personal, among individuals. The human mind, no matter how rational, is also equipped to cloud its rational side with a list of thinking errors often referred to as cognitive biases. The article looks at some of the more common situations involving these biases we encounter on a day to day basis.

I will keep referring to Mehak as the protagonist in all the anecdotes. And that is not a bias!

Mehak is trying to research on the potential of portable steel toilets in India. She is trying to go through archives of news articles. Implicitly, she tends to open those that favor her initial thought of the segment being highly attractive.

The "Confirmation Bias" is the tendency to look for evidence that supports an inbuilt theory and implicitly reject or discount evidence that disproves it. The best way to overcome this bias is to always run all evidence past another person or someone completely outside that sphere of work.

Mehak walks into a client meeting as an external consultant and gives a presentation on the future of the portable steel toilets in India. She looks professional, well-groomed and impressive; sounds crisp, diligent and thorough. The audience is impressed!

The audience, initially unaware of the segment and largely unaware after the presentation gives her a thumbs up. Classical case of the "Halo Effect"! The "Halo Effect" is the tendency of an audience to favor a person based on the supposition of a halo, manifested through an impressive personality. It is consciously difficult to rid of this bias but the best way is to avoid taking any decision quickly and waiting patiently to absorb the real picture over a period of time.

After Mehak's impressive presentation, over lunch, one of the client members asks Mehak on the number one issue affecting India. Mehak refers to the growing anguish of a social media enthusiast. They all nod in unison.

The "Availability Bias" implies subjects tend to believe what the world has become basis of the stories that are primarily available. Outrageous media coverage of seemingly less important issues can become deal breakers to forming realistic opinions! It is very difficult to overcome this bias unless there is a conscious attempt to stay detached from day to day affairs.

Mehak is called for a second presentation to detail out some of her hypothesis. She is equally well prepared but the impact is not as good as the first one. Some of the client members begin to ask her really tough questions.

There are multiple biases that are at play here. The "Law of Small Numbers" refers to the fact that most things tend to average over time. One good day will eventually be followed up with a below average day. The "Halo Bias", also at play here, over the period of time, tends to subside once people start entering details in the fine print.
As Mehak realizes that the presentation is getting tricky, she decides to avoid heavy slides and resorts to narrating a story. A story of a widowed woman in rural India whose only way out of poverty is to look at portable steel toilets. The audience begins to get a "real life pulse" of the potential of the product.

"Representativeness", or the tendency to predict the universal from the specific is a double edged sword. If largely true, it is an excellent tool to get people to appreciate the underlying drivers in any study. However, a good story can hide the flaw that the universal may not be inferred from the specific. The easiest way to counter a good story is to come up with another story that proves the absolute opposite.

After the meeting, Mehak steps outside the building for a quick smoke. Her client counterparts, smoking a few feet away, start shuddering in disbelief. They decide to reconsider if she is the right person they want to work with.

"Stereotyping Bias" refers to an expectation of behavior from a certain person depending on factors like gender, race, age, affluence without factoring in the individual identity. It can be tricky as a stereotype often has negative connotations with some of them being linked to poorer performance, immoral behavior or lack of professionalism.

Another bias that comes along with "Stereotyping Bias" is "Hindsight Bias" and "Overconfidence Bias". If you have ever noticed your boss say "I told you so" or "I am 100% sure what I am saying is correct", you should infer the bias he or she is suffering from. It is best to walk out of such conversations as they are rarely constructive.

In conclusion, cognitive biases play a critical role in our interactions with others. While some of them are genetic, some of them have been implicitly absorbed from our environment or developed from personal experiences. While it is difficult to train the mind to overcome years of "nature and nurture" grooming, a few quick fixes will do no harm!

Finally, Mehak should probably read "Thinking Fast and Slow" by Daniel Kahneman. He would refer to the scenario mentioned at the beginning of the article as a typical case of the "Anchoring Effect". The "Anchoring Effect" is the tendency to ensure the first number thrown is the benchmark for further negotiations. As Daniel would advise, Mehak should avoid the trap of the "Anchoring Effect" with her vendor and walk out of the negotiation!

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Sandeep Das

The author, Sandeep Das, is an MBA from IIM Bangalore, a management consultant, the author of “Yours Sarcastically” and a columnist.

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