Friday, October 2, 2009

Cognitive Biases in Decision Making

Cognitive Biases in Decision Making
Wake Up to Live with Desiree Leigh
"To cite a specific cause would be to promote an omniscience that only gods, drunks, politicians, and dramatic writers can claim."
~Anatoll Boukreev

A quote that gives impact into understanding that the 'cause' of any one event is not but 'one' cause but a multitude of events creating either a breakdown or failure or, on the other end, success or a win!

Some causes to the effects or results of the May 1996 Mt. Everest deaths.

Systematic and cognitive biases impair the judgments and choices that individuals make. There are many other biases than the ones I mentioned above, though. My intention is for those who are reading this material to gain a self-awareness of the biases that direct our decision making in all areas of our lives.

The sunk-cost effect refers to people investing more commitment to a project, course of action, or a goal when they have invested a lot of time, money and resources into it. In some ways we can consider this gambling. For example, we place our stakes on the table, lose, and now want to 'fix' the error because there's an emotional attachment to the lost investments. I know I have experienced this in my stock option trades; impaired emotions guiding my choices, such as investing more into a losing trade or doing nothing and just hoping the trade will turn around to my benefit; holding on 'rigidly' to a failed plan of action. There is a time to stick with a commitment and there's a time to say 'next'; to be flexible and change your approach when needed.

What happened at Mt. Everest in May of 1996 was indeed worse. Team leaders and members defied the two o'clock rule. This meant that in the event they did not reach the top of the mountain by two o'clock, they were to turn around and head back down. But because they had invested $70,000+ and much of their time training for this project, they defied the rule, and it cost them greatly; their lives.

The overconfident bias can also lead to impaired judgment in decision making. Overconfidence (as well as under confidence) is attached with impaired emotion. What happened with Rob Hall, one of the team leaders, was that in all his 39 climbs to reach the summit, he experienced sunshine and an ease of travel, calling the path to the summit 'a yellow brick road'. This cognitive bias impaired his judgment because he did not positively assess the difficulty in descending in the dark, later defying the two o'clock rule.

The recency effect is defined as over relying on 'recent events' when establishing probabilities; not looking at the full range of past as well as current experiences. Because of the recent "hot streaks" of success, the leaders underestimated the probability of failure. Over the course of Rob Hall's experiences in climbing Mt. Everest, the weather was always with him. He was never able to experience a storm high on the mountain top. This impaired his decision to deny the two o'clock rule.

What biases are you unaware of that are controlling your decision making process? What biases would you rather deny instead of face? Perhaps it may be a business or personal love relationship, an investment in real estate or the stock market? Perhaps it's your socially conformed vision or goals? Maybe it's even your health or physical condition? What thoughts are you holding onto 'rigidly' and what are you overlooking or denying?

A good question to ask would be "How should I go about making that decision?" when stumped on what to do, whether it be to leave a long-term personal or business relationship, to leave a current high paying position, or to enter an educational course or workshop. Then let the Universe begin bringing you all the resources you need to make a better decision, rather than asking "What decision should I make?"

Plan your course of action; stay committed; and most forgotten about, remain open and flexible.

Reference

Roberto, M. A. (2009). The Are of Critical Decision Making. The Teaching Company. Chantilly, Virginia

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