We all like to think of ourselves as rationale, but so often we are not. So why are we surprised when Executives like Mark Hurd of HP make bad choices. It does raise the question about what drives irrational behavior. And how this behavior can include some irresponsible choices. Work that Rom and Ori Brafman have pulled together gives clues in this book review. Plus I add some commentary.
Our Major Challenge is:
Blinders: Producing Irrational Behavior
Without consciousness, we see our identity and reputation as having to be protected and this protecting serves as a psychological force that will steer us off the path of reason. There are an array of such psychological undercurrents which are much more powerful and pervasive than most of us realize. The interesting thing is that these forces, like streams, converge and become even more powerful. Three core blinders:
- Loss aversion (our tendency to go to great lengths to avoid possible losses)
- Value attribution (we imbue a person or thing with certain qualities based on initial perceived value)
- Diagnosis bias (our blindness to all evidence that contradicts our initial assessment of a person or situation)
It takes place as a result of Brodman’s Brain area 10. It is where taking initiative happens, planning ahead, silent thought, and daydreaming. It makes abstract thought possible. Value attribution is such a strong force that it has the power to derail our objective and professional judgment. Simply put, a faction of modern day anthropologist weren’t thinking scientifically when they rejected the new finds.
First impressions: we diverge from rationality from the moment of first impressions of a person. It can be altered by a mere word, why interviews are a terrible way to determine a job candidates’ future performance. Or a pretty face makes us an offer we cannot refuse. Even in NBA, the place in the draft influences the amount of playtime the entire career. And likelihood of getting traded and longevity of their career.
Loss aversion: the feeling of dread over price increase is disproportionate, or asymmetric, to the satisfaction we feel when we get a good deal. (2 1/5 times) We experience the pain associated with a loss much more vividly than we do the joy of experiencing a gain. Losses loom larger than gains. So we overreact to loss.
This plays out in our decision making process. We sign up for unlimited plans ‘just in case”. We are willing to sacrifice a little bit to avoid a potential loss. The word ‘loss’ alone elicits a surprisingly powerful reaction in us. That is why the ‘loss damage waiver’ sells well on rental cars. Most plane crashes come from either loss avoidance (behind schedule) or identity attachments (who I see myself as and will not allow to be undermined).
And the more meaningful the potential loss is, eh more loss averse we become. In other words, the more her reputation is on the line, the easier it is to get swept into an irrational behavior. E.g. market investments where people will not sell on a loss even when the investment keeps declining and they are likely to lose all. Hidden forces take over.
Most of us fall victim to the loss aversion, but another closely linked sway is called “commitment”. We grind it out because it is hard to let go. We continue to walk down a road we have always walked. We become so committed it is virtually impossible to take a different path. We find it difficult to let go even when it is not working. Staying the course simply because of a past commitment will hurt in the long run. We are strongly driven as mechanical beings.
These two forces, loss aversion and commitment, have a powerful effect on us. When they combine it becomes that much harder to break free and do something different. But this is where a great business opportunity is found because of an industry or set of businesses that are stuck in these two combined forces.
It takes a very reflective person to see these convergent forces at play in themselves since our mind tends to create an exuberant optimism when we are activated. We are hoping against hope, in the face of potential loss, that everything will turn out okay. The Brofman’s say it happened to LBJ and George W. Bush in two different wars. To withdraw now is to accept sure loss. And that option is deeply unattractive. Even if the chance of success is small and the cost of delaying failure is high.
Value Attribution: another sway
Our tendency to imbue something with certain qualities based on perceived value, rather than on objective data. People often attribute effects to certain physical things, like a lucky baseball cap, or jeans- to the quality of the performance. These act as mental shortcuts to determine what’s worthy of our attention. When we encounter a new object, person, or situation, the value we assign t it shapes our further perception of it, whether its our dismissal of a curiously inexpensive antique we find at a flea market or our admiration of a high priced designer bag in a chic boutique. Value attribution affects our perceptions of people. We often miss out on something worthwhile because of our preconceptions about its value. In anthropology, for example, they will block for many years the acknowledgment of a profound discovery. Once we attribute a certain value to a person or thing, it dramatically alters our perception of subsequent information. This power of value attribution is so potent that it affects us even when the value is assigned completely arbitrarily.
Expectations change the reality we live in. The value that we attribute to something fundamentally changes how we perceive it. . When you get something at a discount, the positive expectations don’t kick in as strongly. And once we attribute a certain value to something, it is difficult to view it in any other light. No one is immune to the powerful influence of value attribution. It will override product discounts and will often see the discounts as making something inferior.
Diagnosis Bias:
(Our blindness to all evidence that contradicts our initial assessment of a person or situation, including our propensity to label people, ideas and things based on our initial opinions of them—and our ability to reconsider those judgments once we’ve made them.) So once a player is labeled a ‘low-pick’, they are forever. It is a diagnosis cloud that hangs over them.
We are so susceptible to this diagnostic sway, which even a single, seemingly innocuous; word has the power to change our opinion. A description of an substitute teacher as a “Warm professor”, verses cold, influenced the classes report on the substitute teacher.
When value attribution meets with the diagnosis bias, no matter how brief, it inevitable shapes our experience of that person and subject.
Even when we are not given a clear-cut value tag, we are so easy to assign a value, that we create our own diagnostic label. Most of us simple can’t stay neutral for long, which is why we are so susceptible to following the siren song of the diagnostic bias. We use these to organize, simply. We do not notice its effect once we have it in mind and we do not notice what does not fit. We put on diagnostic glasses when we meet new people. This bias causes us to distort or ignore conflicting data.
Effect of the Diagnostic Bias on people (beyond its filtering effect on accuracy):
First, by people being diagnosed—there is pressure to make people fit into the diagnosis and no space to do otherwise. All behaviors and decisions become confirmatory. It is easy to start acting it out as a way of being in the world. We fit into the mold being created by the diagnosis. And then it becomes quite a tangle between what’s really going on with us versus what we have been labeled with.
When managers were labeled as high leadership material, it upped their performance by 23% on average. People rise to meet the expectations. Or fall. The molding process becomes self-perpetuating. We take on characteristics assigned to us. The diagnosis is reinforced and reaffirmed. . This process creates something like circular logic.
Trap of diagnosis: Pygmalion effect. (Positive traits), Golem Effect (negative traits). Chameleon Effect is a Catchall. In one study, without realize it, women took on characteristics men expected of them on phone calls (men were told they were beautiful or plain) in a dating service. Being thought of as beautiful made the women actually think of themselves as beautiful and exhibit “beauty in their conversations. And also the opposite for those who were expected to be plain.
Such diagnosis it has long-term effects on health. Researcher found that external imposed and negative perceptions of aging were responsible for changes in health 5 years out. Negative and external feelings about old age, can actually make people physically age faster. And the opposite, made them improve or maintain health.
Fairness Expectation: We have a deep-rooted belief in all cultures in fairness (though its meaning varies by cultures) and we go to great lengths to defend and demand it. For fairness to be assessed as having happen, it is not the outcome, BUT THE PROCESS that was the determiner. This expectation of fairness causes us to react irrationally because we are seeking procedural justice. . In case after case, irrationally so, people cared more about the behavior toward them, than the outcome. When car dealers were forced to pay more to manufactures than reasonable, they felt it was fair if the behavior toward them was. If manufacturers took pains to learn the local conditions under which dealers operated and acted in a polite and well-mannered fashion, and treated dealer with respect, they felt it was fair even when the prices were high and got stuck with inventory. The fairness factor proved more important than the underlying economic numbers to the dealer. It was the relationship.
It is very important to fairness experience for people to feel they have a voice. . Even for a criminal, the process of treatment by their lawyers ranked only slightly behind their outcome as standard of fairness. How much time their lawyers spent with them and listened to them, made them more satisfied than a better outcome they had sought. We want to have the feeling we have control in the process and can voice our thoughts even if the outcome is the same as without the process.
Venture capitalists are more likely to fund again if they were kept informed regardless of outcome of previous investment with an entrepreneur.