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Saturday, December 1, 2012

When you thought you knew it all along, that snap business decision could be biased, 2.


The inherent trap in believing that we knew it all along and that snap decisions are right, or gut feelings are always right, means that you won’t stop to examine why something really happened. Seasoned businessmen and investors find it hard that a judgment made based on experience and trends over the years could be biased. Why? This is because they have fallen to the trap of overconfidence. How often they have ended up taking risky, ill-informed ventures that yielded no significant results because they trusted on hindsight.

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Psychological scientists Neal Roese of the Kellogg School of Management at Northwestern University believes that technology may make matters worse. "Paradoxically, the technology that provides us with simplified ways of understanding complex patterns -- from financial modeling of mortgage foreclosures to tracking the flow of communications among terrorist networks -- may actually increase hindsight bias," says Roese.

Getting around our cognitive faults

Intuition has proved helpful in many instances. Following gut feelings has saved lives, especially when one is an experienced professional. Yet, it is wiser not to very much rely on it. Experts again and again counsel that when you have to take an important business decisions, do not allow the time pressure or information overload, force you into making snap judgments without deliberate analysis. Although we need both conscious and non-conscious thought processes, intuition is fraught with many loopholes. Better to avoid it than be sorry.

When next you catch yourself making snap judgments on other people’s character or personae, ask yourself: “Am I feeling this way because my mind is working in the negative? Is it because I just failed a test or something?” We should train ourselves to exert better control. Our impulse can lead us into dangerous pathways. It is also wise to consider the opposite of an outcome in order to consider if we are being ruled by hindsight bias.

For example, if you thought you knew it all along, that the IPO would bring in enormous yield in a short time frame, why not consider the opposite and carry out a basic what-if analysis. Be careful, also, not to be in the habit of throwing out information that doesn’t fit your concept of how things should work. Be ready to criticize your judgment and decisions. Doing so, you can be able to make decisions, even in a short time frame, that gives you a holistic perspective of the desired outcome.

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Dec. 01, 2012.


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HI, this article was great.