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

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

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While doing business, reaching conclusions or meeting strangers, if one is tempted to resort to snap decisions that can influence the outcome of the interaction, he could end up being unfair and biased.

Take some Scenarios: We tend to believe that wealth is everything; that money can buy its way into anything. It can even buy judgment and love. The watch you set on alarm doesn’t work as expected. It should have rung at the expected time. You conclude immediately that it was a fake. Concluding that a well-dressed man coming out of a Rolls Royce who looked ready for business owns the car.

Biases come about when we depend on intuition

Title Picture:

No prejudice among matches. Credit: Flickr.com, szeretlek_ma

When under severe time pressure, in a situation of information overload or when under acute danger, when conscious analysis of the situation may be difficult or impossible, or due to over-reliance on technology, we are tempted to make snap judgments and take decisions that depend on experience and not on verifiable, provable facts. We are relying on “gut feelings.” It is not unusual to instantly hate a person you met for the first time because your body wanted you to do so. It is difficult sometimes to explain why an investment is not right, but you just believe that investing in a stock is not right. These gut feelings are real and should be taken seriously.

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They come about because one is drawing on past experiences and non-verbal cues to make a decision. Furthermore, the decision is not deliberated upon, since there is little time, so that one relies on what “he thinks,” or that he or she “knew it all along.” How often have you felt that a political strategy would lose the elections, even when the polls were not conclusive, because “you knew it would happen?”

Our frailties and complexes could affect this unconscious decision making and influence us detrimentally. If you feel bad about yourself, you are more likely to show bias against people who are different. This is because it makes you feel better about yourself when you stereotype or prejudice against others. According to Jeffrey Sherman and Thomas Allen of the University of California, Davis, when we feel bad about ourselves, we can denigrate other people and that makes us feel better about ourselves.

Traps to look out for

It is important that we know our biases are at work when we judge people by their faces, their environment or some other criteria. We should also be careful not to judge other people by standards we have set for ourselves. Confusion and conflict could be the end result. People tend to be different. Situations can change. We could be influenced by our moods. It is difficult to predict an outcome at a moment of intense time pressure or because it is difficult to prove it. Predicting people takes more than snap decisions.

In an age when we rely on statistics, trends and technology, we could fall into this trap without realizing it. We could feel that we did know it all along when the charts show a trend on some stock when actually we didn’t know it all along. Hindsight bias is a decision trap that can influence and impact our success in various domains, including medical diagnoses, accounting and auditing decisions, athletic competitions and even political strategy.

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Dec. 01, 2012.

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