How Mind-Traps Could Be Costing You In Business (And How To Beat Them)

If your answer to this problem was “10 cents”, you’ve just fallen into a simple mind-trap. You relied on intuition to answer the question. Consider it again more carefully and you’ll probably calculate the correct answer.

Psychologist Daniel Kahneman has presented this bat-and-ball problem to hundreds of Ivy-league university students, with fascinating results: more than half of them got it wrong. Undoubtedly these students were smart enough to work out the right answer, but they relied upon a “fast and dirty” style of thinking that tricked them into making the wrong decision.

Kahneman’s meticulously-researched book, ‘Thinking Fast And Slow’, shows that our brains can utilise one of two systems to reach a conclusion:

System 1) = Intuitive (based on impressions, associations, feelings, heuristics)

System 2) = Reflective (based on slow, effortful, deliberate calculations)

System 1 is useful for making quick decisions and “knowing” things that can’t easily be explained by logic (e.g., sensing that we shouldn’t trust someone when we first meet them). System 2 is more logical and accurate, but it is expensive to run in terms of time and energy. We tend to rely more heavily on System 1, only utilising the System 2 when it seems that it is worth making the extra effort.

Why is this so important for people in business to understand? Basically, it can stop us from making costly mistakes and looking like shmucks. Recognising that we ALL fall into mind-traps frees us up to take a solutions-focused approach. It prompts us to put systems and processes into place that mitigate against our cognitive biases.

Below are the four key “mind-traps” that smart business people guard themselves against.

Four Costly Mind-Traps

Conservatism Bias: Over-weighting the costs of change and under-weighting the costs of stasis. This bias can lead decision-makers to eschew innovation. It leaves organisations slow to respond to market changes. It can also lead individuals and teams to throw good money after bad and to keep investing time into low-value activities.

Confirmation Bias: Involves filtering out evidence that contradicts preconceived notions, and focusing on evidence that confirms what one wants to believe. For instance, after making a decision people (and groups) are great at convincing themselves that they made the right one. They may ignore – or even punish –people who voice contradictory evidence.

Anchoring: The tendency to compare and contrast only a limited set of items when making decisions. For instance, we often think about prices relatively, rather than absolutely – a fact that negotiators exploit by making either a very low or very high initial offer. Another instance of anchoring would be a leader asking her sales team whether outbound calls should be increased by, say 5 percent; her team’s responses will gravitate towards that figure and they probably won’t consider a broader range of options.

Stereotyping: Making assumptions about people and groups based on over-generalisations, rather than the facts at hand. This costs businesses hugely when it comes to hiring decisions, because hiring managers often let irrelevant qualities like height, gender, attractiveness and accent affect candidate selection. It also costs businesses in sales, because salespeople sometimes dismiss prospective buyers (for looking young, poor, female, “ethnic”, etc.) who actually have money to spend.

How To Avoid the Traps

Awareness of your biases is a good first step, but a word of warning… merely knowing you have biases is not enough to eliminate them. You need to notice when you are making assumptions and make a concerted effort to engage your reflective brain. Getting comparisons down on paper may help to reduce biases.

Be a Goody-Two-Shoes: Eat well, sleep well, stay active, take regular breaks. Tired brains tend to resort to the “lazy” System 1 to make decisions. If you want to avoid stupid decisions, look after your decision-making engine!

Collaborate with others and encourage honest feedback from people about your decisions and approaches. Try to elicit opinions from people who are likely to disagree with you.

Use the “pre-mortem” method: Imagine that your decision/project has turned out badly – what’s the story of why it went wrong?

Catch yourself when you’re rationalising a decision. What are the feelings that you’re defending yourself against? For instance, are you trying to avoid regret? If yes, try accepting the feeling (rather than avoiding it) and consider the situation from an outsider’s perspective. Ask yourself “If I wasn’t already invested in this business/project/relationship, would I invest in it now, knowing what I know?”

As a buyer or negotiator, you can counteract the anchoring effect that salespeople use by researching prices and establishing market values beforehand. You can also counteract sellers’ stereotypes by showing that you’re armed with information and won’t be a pushover.

Finally, don’t get rushed into making important decisions. When you’re under pressure, System 1 is far more likely to take the lead. Buy yourself time to make important decisions.

Further Reading:

• Nudge, by Richard Thaler and Cass Sunstein
• Thinking Fast & Slow, by Daniel Kahneman
• Blink, by Malcolm Gladwell

What mindtraps have you encountered in business? What have you learnt from the experience? Leave your comments below – we’d love to hear from you!