1. Data are ambiguous and can be interpreted in more than one way.
We fail to see the role of chance and overestimate degree of control.
2. Rationalization (motivated inference)
We distort memory and make self-serving explanations in order not to blame ourselves.
Our successes are due to skill, our failures to bad luck.
Overcome rationalization by:
3. Hindsight bias - you knew it all along.
Overcome by keeping a judgment diary so you can see what you were really thinking.
1. Avoid missing feedback (absent data, confirmation bias)
2. Avoid entwined feedback, i.e. feedback confused by
3. Do a regular learning analysis to indicate what you have learned from missing feedback.
4. Experiment and design feedback so you can learn from mistakes. Do statistical experiments.
5. Scrutinize the decision making process, making sure that you didn't do the right thing for the wrong reason.
Do a decision audit to evaluate how you make decisions
1. Reevaluate your use of time, making sure you are spending enough time in each part of the process: framing, gathering intelligence, coming to conclusions, and learning from experience.
2. Audit your decisions looking for ones with good and bad results.
3. Look to see what decision traps you fell into, i.e. what error tendencies you succumbed to.
4. Have groups do decisions audits too.
Fooling yourself about feedback (Russo, ch. 8)
Tendency to fail to learn from experience because of motivated inference or hindsight bias.
Not keeping track (Russo, ch. 9)
Tendency not to keep systematic records that would make it possible to learn from past decisions.
Failure to audit your decision process (Russo, ch. 10)
Tendency not to monitor your decision making in an organized fashion that would identify errors.
1. People are not aware of frequent scams presented as business opportunities. They do not realize that these scams are often advertised in reputable newspapers.
2. Confirmation bias: People respond to claims about business opportunities by trying to confirm them, rather than by trying to find evidence that would refute the claims.
3. Anchoring: People discount claims about how much money they can make from a business opportunity, but they are anchored by the very high claims made by the advertisers so that they do not discount the claims enough. Most new businesses lose money.
4. Motivated inference: People want to believe that they can make money out of the business opportunity, so they do not ask critical questions. Partners may succumb to groupthink.
Updated March 31, 2003