Dilbert does Emotional bias

Welcome back – you must be born lucky to have survived this long in uncharted decision-making territory, but todays trip might just change your fortune… Dilbert is taking you to see Emotional bias with the dubious honor of both representing several sub biases such as the wonderfully illustrated Status Quo bias above AND having the capacity to substantially increase the damage of all the other biases.

Possibly the most dangerous animal in the entire bias safari, you will encounter it daily. When you are happy or annoyed, you can be sure that all your decisions will be viewed through those glasses – therefore you should always request approval for that investment proposal, when the boss is in a good mood and will remember, when your proposals panned out in the past. It also works by somatic markers – when you come across a decision, your brain will look for similar past situations and recall your emotions around the different choices, so you will feel either good or bad about a certain choice. Basically, your emotions will make your decisions for you, but do not worry – if questioned you will quickly be able to rationalize it😊

Not only do you make most of your decisions in an emotional way, but Emotional biases also comes with an entire dysfunctional family each with their own nasty habits of attacking, when you least expect it:

  • Status Quo bias: Your irrational preference for the current situation, which is great, because it means that it is easy to predict your competitors’ strategy – it looks almost always the same as last year according to a McKinsey Quarterly article.   
  • Self-Serving bias: Your tendency to attribute positive results to your efforts and negative to something external like special circumstances or someone else’s actions. Another great one that allows you to keep your job, while massively screwing up – just try to avoid doing it too often, as people may catch on…
  • Hyperbolic Discounting: Your strong preference for receiving rewards now instead of later. It is completely fair to expect the value of receiving one million euro now to be higher than in ten years, as you can invest it now to have more in ten years. But here the difference between receiving it in ten or nine years matters little – while now or in one year is critical – although both scenarios reflect a one-year delay. This might come in handy in your next negotiation…  
  • Multiple Selves: Your internal conflict of dreaming a healthy and self-actualizing future, while today you just want greasy burgers and binge watch the entire Game of Thrones series. This is your system 2 planning what you should do, while your system 1 is busy with what you really want right now. So, if you address the future of your customers, you are activating system 2 and a rational response – and vice versa.
  • Large Number Insensitivity: Your emotional response to for example saving lives is negatively correlated with the number of lives, so a news article with one specific life saved may seem incredibly important, but 100 will just become a number. Positively, it also allows business and political leaders to make the tough decisions, that are sometimes required – for example prioritizing government spending by comparing the potential saved quality life years on climate or corona (Well, theoretically at least😊).

So Emotional biases accelerate your problems, attack you from many directions and to top it off, you have no easy tricks to handle it – no wonder it is at the top of the food chain. Still there is hope. On the personal side, if you train identifying emotions, they tend to diminish, and when you get your sleep, eat healthily, and avoid over complicating your life with irrelevant decisions, you will have more energy to go through a rational decision process, when it really matters – this is why Barack Obama and Albert Einstein only kept two colors of suits. On the business side if you make sure to combine decision making power with the responsibility for carrying out the decision and building in fact-based decision making into all processes, this has a sobering effect. But never underestimate the ferocity of Emotional bias!

You have now met the first four animals of Availability, Confirmation, Overconfidence and Emotional bias. If you are not scared by now, you are probably beyond help. To reach a full 70% of strategy failure, you will next time meet Loss Aversion, where you put twice the value on losses than gains – and maybe after that a little secret something extra just to keep you safe. Again, do not attempt to contact these animals on your own – remember we are trained professionals. Contact me now at brian@behaviouralstrategygroup.com or +45-23103206.

Stay safe.

Dilbert does Overconfidence bias for New Years

Happy New Year! What better way to start the year than with a New Year resolution, that you will fail within January and already have a solid explanation for before February hits…😊 Yes, you have just met Overconfidence bias without the safety of your Dilbert tour guide, and you lived to tell the tale!

Overconfidence is well known for luring you into all sorts of adventures, where you have limited experience, knowledge, or ability. While Availability bias lights up information you have readily available and Confirmation bias lights up information you are looking for, then Overconfidence lights up your chosen path, so it seems easy, even if it is new to you. In fact, the less you know, the better you think you are at it!

Overconfidence is the tendency to be overly optimistic about yourself – to overestimate your competencies towards any task, overrate your ability to beat competitors and not least overly believe in the precision of your knowledge. Some close bias family members are wishful thinking, illusions of control and positive self-conception. In a study of different professional groups individuals were asked whether they were in the top 10% of their group. 60% of the engineers felt they were in top 10%, 80% of the architects put themselves among the best 10% and 100% (yes all of them!) of the naval cadets were of course clearly in top 10%…

In our own work we have asked groups of 5 leaders to work together on an exercise and at the end of the day estimate individually, what their percentage share of a reward should be. To reach 100%, then each of the 5 leaders would have to request an average of 20%, but without exception each class would request an average of 140% of the reward. So, when your overconfident management team decides on your target and strategy, then the first is likely to be too high by about 40% and the second unsubstantiated. For example, Sony never lost faith in their proprietary Betamax technology, even as the open VHS standard was quickly outpacing them.

The good news is that this is one of the least dangerous animals on this safari through uncharted decision-making territory – not because it is less deadly, but because the tricks to tame it are not that difficult to learn. Firstly, unlike the other biases it does not spring into action in a spectacular way that allows you to recognize it but expect it to be always present in your colleagues (not you of course – you are surely different from the rest of humanity). Secondly, it is often easier to affect through for example the use of worst-case scenarios or seeking broad disconfirming evidence.

Overconfidence is here for reason though. It helps you accept rejections in sales like situations, keep fighting in rough times and generally protect your self-worth. For CEOs in creative and R&D heavy industries it helps fight against risk aversion and invest in high risk/high reward projects. Just remember it also makes you think that you can walk on water and turn anything into gold – hence the poor investment returns on acquisitions of the past. So, in major uncertainty areas create detailed models including worst case scenarios and in the smaller look for contracting data or at the very least assign a Devils Advocate to pressure test your next investment.

The three first animals of Availability, Confirmation and Overconfidence bias kills close to half of all strategies, so gear up with the shared tools now. There are two more animals to meet and this time you got lucky with your New Year resolution by surviving one of them without your guide. It is not recommended to venture out on your own, so if you cannot wait, then contact me now at brian@behaviouralstrategygroup.com or +45-23103206.

Stay safe.

Four ways to limit your irrationality

Business context: Guiding decisions

“Our irrational behaviors are neither random nor senseless – they are systematic and predictable. We all make the same types of mistakes over and over, because of the basic wiring of our brains”

Dan Ariely, Behavioural Economics Professor

You are predictably irrational – and that is good news. Because if you can predict it, you can fight it. You now know that process is 6 times more important than analysis in taking solid decisions, but behavioural economics shows that the context in which you make your decisions is also more important than the content.

The classic context example is the three sizes of coke cups in cinemas: Almost everybody buys the middle one. The large is a waste and small one kicks off your loss aversion. So why does Coca Cola insist on three sizes? Because they want you to go through the process of picking one of the three – they do NOT want you to go through the process of picking a coke or nothing at all…

That makes sense for consumer purchases, but what about business decisions – what context are we talking about here? There are four major contextual areas to consider all designed to minimize the pressure on your limited cognitive ability – your system 2:

1) What is the business context? If you are making a corporate strategy, it would be the key industry trends and competitive forces. If you are making any other decision, it would be in the context of the core guiding decisions of purpose/values and objectives/strategy. This helps reduce the complexity of any later decision, as you have a scaffold to lean against. For example, I recently worked with professional services firm, where once the strategy was clear it was surprisingly easy to make business divestments, capital allocation, talent management etc.

2) What is the temporal context? Every decision fit into an operating system of core business processes and decision fora throughout the year whether these are with external or internal parties and focus on strategic business or people decisions. This helps channel decisions into specific flows, so they come at the right time and the right order, which in turn ensures alignment among players and bite-sized decisions. For example, I worked with a logistics company with several business units, functions and geographies, where this lined up all decisions into one coherent organizational move.

3) What is the people context? Every decision requires someone to give input, someone to do the analysis, someone to decide and someone to execute. So there is a need for people to play different roles – the right people in the right roles with the right competencies – and you need to understand the power and politics of these critical stakeholders. Getting your ducks in a row will remove clutter and avoid delays in decision making. For example, I worked with a consumer products brand, where this clear guidance of roles and right people made the difference between success and failure in complex strategic programs.

4) What is the decision context? Some decisions are high impact and difficulty – they clearly deserve a strategic process. Other decisions are low impact and difficulty, where the right response is more of an operational decision process – and then there are those in between. Below are examples of the decision approaches I have used in countless businesses and projects – often together because the solution for small problems fit into the mid sized like the mid sized fit into the large – a bit like Russian Matryoshka dolls (avid readers will note, that the classic problem solving method has been revived for midsized tactical problems:)).

Decision context: Problem solving

So how do you make decisions – and are you structuring your context for maximum cognitive application?

Contact me at brian@behaviouralstrategygroup.com or +45-23103206 for more inspiration.

Dilbert does Confirmation Bias

At your next stop on your tour through uncharted decision making territory, Dilbert will safely guide you around one of the most dangerous animals to let into your modern world – confirmation bias. Widely feared for its ability to disguise itself as exactly the proof, you were looking for, it also comes with the benefit of quickly searching through vast environments – basically whatever you are looking for will light up like a wildfire in the jungle and everything else will fade into the darkness.

Confirmation bias is your tendency to seek, interpret and retrieve information consistent with your prior beliefs simply by ignoring or underweighting the aspects that does not fit – some of the closest bias family members are your persistence even after proven wrong, your 20/20 hindsight, your ability to see non existing correlations (average age of successful entrepreneurs is ~40, but people think of college dropouts like Mark Zuckerberg or Bill Gates) and your preference for first information (what you say first matters most – and your impression of a person or a company in one area automatically extends to other areas – but even mere repetition will automatically make you believe a statement more). Dangerous animal…

But a dangerous animal that you can recognize, when all evidence in your strategy paper points only in one crystal clear direction – the world is just never that black and white. Or when you have an innovative idea and there seems to be many good reasons to do it but few come to your mind not to – in fact you know this in the form of the advice “kill your darlings”. For example Blackberry had the same information as everyone else, but focused on keyboard phones for B2B communication, when market went to touchscreen B2C entertainment.

Just like the other animals you will meet, confirmation bias is here for a reason. It does help you sift through tons of data for the famous needle in a haystack. But remember to always pressure test your ideas – what are the most powerful counter arguments, what are the best alternatives, why do some disagree – a good trick here is wisdom of crowds. It has been proven that experts are excellent at explaining the facts of the past but are no match for a group of average people in guessing the future – simply use the average of the group after learning the facts but before debating.

If you are working on a strategy try the Playing-To-Win concept. It is a simple, cohesive and iterative approach to identify strong answers to the key strategic questions of what is your winning ambition, where do you want to play in terms of which offerings to which segments, how do you intend to win each of these focus areas, what core capabilities are needed and how do you support them with management systems. Take out two days and facilitate discussions around these five questions – individually to ensure deep input, in small groups to ensure broad input and plenary to build commitment.

The two first animals of availability and confirmation bias kills 1/3 of all strategies, so do take the proper precautions. In the next weeks you will meet the last three and learn how to handle them, but if you are already in the deep end with some of these animals, then contact me now at brian@behaviouralstrategygroup.com or +45-23103206.

Stay safe…

Dilbert does Availability Bias

All aboard!

As promised Dilbert now starts your guided tour through uncharted decision making territory with guaranteed dangerous animal sightings. The first animal you will encounter in this jungle is the availability bias known for razor sharp focus with the deadly bi-effect of tunnel vision – basically where you put your flashlight will be crystal clear, but everything right outside the light will completely disappear.

Availability bias is your tendency to routinely overlook important pieces of information in both assessment and decision phases, because you are too focused on where your flashlight is – the closest bias family members are your low ability to see small changes over time, notice information different from your expectations and properly weigh importance of information that does not come easily to mind. You can recognize the animal, when you feel like “why didn’t I see that” and actually inspect a sample of the species here from the safety of your own home: http://www.theinvisiblegorilla.com/videos.html – Check out the video before you read on!

WYSIATI – What You See Is All There Is – is probably not the best acronym in the world, but it describes well the situation that Blockbuster found itself in, when the largest global video rental company kept investing in brick and mortar right before filing for bankruptcy. And it is no surprise, because the danger is fourfold, as you tend to fail in seeing, seeking, using AND sharing the relevant information.

Now remember a razor sharp focus is not a bad thing in itself – in fact many businesses have been extremely successful from doing that one thing different: The digital version of x, the sustainable equivalent of y, the healthy alternative to z etc. But those rare but critical decisions deserve a little extra😊

If you are in a hurry a good trick in strategy is to use stretch targets to really put traditional thinking under pressure, but if you are looking at a full blown strategy try megatrend analysis. After creating hundreds of strategies this is still the most powerful way of quickly creating powerful insight.

Identify the current megatrends and research where your industry is impacted by each of them to find key themes in your industry for the next decade. This will also reveal some critical scenarios, where there is no clear direction, so you need to decide, where to place your bets (No, strategy is not about certainty of success – it is about maximizing the odds). Finally, make sure to follow key indicators of the different critical scenarios to allow you to pivot in case something changes while you are executing…

Remember this animal alone has a 16% chance of killing your strategy, and in the next weeks you will meet four other animals with a combined strategy destruction capability of 70%. If you have already ventured too far into the strategy jungle and are hanging by the edge of your seat to handle these animals now, contact me at brian@behaviouralstrategygroup.com or +45-23103206.

Stay safe…

Dilbert does Behavioural Strategy

Source: http://www.dilbert.com

Nobody explains business like Dilbert (or at least nobody is as entertaining while offering some insight at the same time)!

Our book Decision Strategy was awarded 5th place among global business books in 2016 by Danish business newspaper Børsen, where we structured our +200 biases into 6 core bias groups and matched these up against the best strategy tools. Embarrassingly enough Dilbert managed to more or less sum up the core findings in just one strip above…

So in acknowledging that Dilbert has the upper hand in communicating complex stuff in just three pictures, we will in the upcoming blog let him do the talking on the 6 core bias groups:

1) availability bias – where your world is the only one (ever seen an industry leader get disrupted?)

2) confirmation bias – when your idea suddenly finds confirming evidence everywhere (could it be… because you looked for it?)

3) overconfidence – where you are better than everyone at everything (are you by any chance an above average driver?)

4) emotional bias – the nifty functionality of worsening your other biases (thanks for nothing forefathers!)

5) loss aversion – where you put twice the value on losses than gains (do you prefer a bonus opportunity of DKK 250,000 or a higher base salary with the risk of losing DKK 250,000 if you do not reach your targets?)

6) bounded ethicality – where your ethical border moves away as you near it (anybody worked in banks in 2008?)

Once you nailed those six core bias groups, you are well under way to becoming a Behavioural Strategist (nah not really, but the structure does help a lot as opposed to learning 200 individual biases by heart…)!

Join us for a fun (and relatively safe) ride into uncharted decision making territory😊

Russian roulette with mink

BSG roulette is like Russian roulette but with five bullets aimed at your foot

The Danish government just played BSG roulette with the mink farms – It is an even more exciting game than Russian roulette, as five out of six chambers in the revolver hold a bullet aimed at your foot. Each bullet is named after the five reasons strategy fail and their accompanying biases. How do you think the government fared?

Well, firstly it is important to understand the full context and options available, so you need to get all the right insights and experts to the table to avoid availability bias – the bias where you tend to only look at what you already know. In this case a small group of politicians from just one party with limited real life experience got together without consulting anyone. BANG – first shot in the foot!

Secondly, the actual decision needs to be unbiased, so it is important to either come to the table with no prior agendas and no one holding a particular power position or facilitate your way out of that, as you want to avoid confirmation bias – the bias where the solution is already conceived and everybody is only looking for confirming evidence. In this case our group of politicians have been accused of wanting to remove the mink industry for years and their leader had several times pushed other things through without the direct reports understanding why. BANG – another bullet hole in the foot…

Thirdly, when executing you need to align competencies including organization, processes, systems and governance with your new strategy. It might seem obvious, but overconfidence can easily get you to jump directly to march orders and suddenly hit a roadblock. Here our politicians were quick to issue the order to kill off all the mink only to find a few days later, that they were breaking the law. BANG – a pattern is starting to emerge here…

Fourthly, during execution you need adequate follow through to avoid emotional bias such as status quo, where under uncertainty you tend to stay where you are (which makes a lot of sense). Our group of politicians executed this fast and furiously, so a relaxing and satisfactory CLICK.

Finally, particularly with big decisions you need to prepare for external change – new knowledge, stakeholder reactions etc. – and be ready to roll with it. This is no easy feat, as your often public commitment to a course of action also means a loss of face, if you suddenly change it. You are about twice as focused on avoiding losses than obtaining equivalent gains. In this case many of the researchers and scientists the government should have consulted in the first step were quick to warn against the decision, but so far the government has stood their ground. BANG!

So four shots in the foot in the government’s decision process – expect to see some limping around. If you would like to avoid severe foot pain from your business decisions, get in contact…

Four easy tricks to avoid poor strategy decisions

You have seen how your biased decision making leads to 70% failure in strategic initiatives and how the behavioural strategy process can save you by using the methods in the four steps above chronologically. But what on earth is pre mortem tests, when do you use wisdom of crowds and why would stretch targets help you???

Well, firstly the decision making process above is not just designed for strategy – it is designed for good decisions. Period. But not all methods are made for all types of decisions, so here are three examples of relevant methods for each starting with the most demanding that we use for strategy and ending with simple ones that you should use every day. You are welcome;)

For each step it is important to remember why you are doing it. In the first step you want to broaden perspectives, because people have a tendency to only look at the options that you already know and typically no more than two – but research shows that this leads to bad outcomes in 50% of decisions. By applying stretch targets in a process you force a discussion on much more different and dramatic options instead of the typical old standards. For example if you ask how your company can grow next year, you are likely to hear something like “push lower prices, increase marketing and channels”. Not very inspiring nor great advice. But what if you ask what it takes to double your business in three years? That’s a very different conversation!

In the second step you want to facilitate a debiased decision. Yep, just that. Obviously this is the most complex area and involves tons of big and small tricks with all the biases involved, but if you want to try a quick and dirty one that cuts across all our biases, use wisdom of crowds. It has been proven that experts are excellent at explaining the facts of the past but are no match for a group of average people in guessing the future – simply use the average of the group:)

In the third step you recognize that you might need to double check a few things before making the final decision, as your overconfidence might otherwise get the better of you – it is so easy once a decision has been reached and the big kahuna at the end has nodded to just press ahead with all the excitement at your back, but don’t! Instead why not try the devils advocate, where you assign 1-2 persons to look for flaws in the decision. The assignees avoid the typical risk of being labelled party poopers, and for better or worse people are great at that game!

The final step is recognizing that for all your preparation you may miss something, something may change or something was not clear at the time of decision – not least because of your limited processing capacity and unwillingness to change once committed to a decision. Before you bet the farm on that decision run a pre-mortem test. When things have gone wrong, you run a post-mortem to see what went wrong. In a pre-mortem you look ahead at the challenges that could cause everything to fail, and create a plan to navigate around them.

There you have them – four easy to apply tricks in day to day decision making to minimize the risk of big mistakes. And when you need to make that major strategy decision call us…

The good, the bad and the ugly

Once upon a time the bad strategy was born.
Something had gone wrong and the old family mansion was falling apart. The head of family decided to ask her closest companions to help her build a new and greater one.
They jumped at the task and picked up whatever materials were lying around. Without a particular idea of what they were looking for, they tried to create some patterns. Eventually – having identified many interesting patterns – they created a master plan including all the different patterns, so nobody felt left out. Finally, they convinced the head of family to force the plan onto everyone.
This is the bad strategy – and the typical approach in most companies. It will be fun and time-consuming, but do not expect a solid strategy.

The ugly strategy was born sometime in the mid 1900s.
The head of family had learned from the first experience and hired a team specialized in architectural wonders. They had great mansion cases, broad competencies and perfect pedigrees. This could not go wrong.
The team clarified all the problems of the head of family. They broke down the problems into different categories and prioritized based on all their experience and information. They analyzed and synthesized the knowledge into a brand new architectural wonder – a new and greater mansion. They combined the different documents into a crisp recommendation and handed it over to the head of family, who was excited beyond belief – until she realized that all that money had only bought her a piece of paper. She still needed to hire scores of specialists to translate the paper into plans and the plans into a real mansion.
This is the ugly strategy – and the scientifically correct approach, deployed by top tier consultancies. CEO desk drawers are full of such strategies, that were never implemented.

The good strategy was born in 21st century behavioural economy.
The head of family had no more room in her desk for paper plans and sought out a new method – the behavioural approach. She was surprised to learn that process was six times more important than analysis and so the mansion would be co-created in four steps with her family.
The first step involved broadening the perspective of everyone in the family on what a modern mansion could be and look like. The second step helped the family make the final decision on what kind of mansion would be the right one given the expected development of the surroundings. The third step recognized that such a process could unravel new questions to be deep dived into – but at least they did not have to go through ALL the data used in the bad and the ugly strategies. Finally, the fourth step recognized that the world changes and there is great uncertainty, so the mansion had to be built with some flexibility – a way to future proof the building.
This is the behavioural approach – minimizing classic strategy pitfalls of opportunity misinterpretation, poor design, competency misalignment, lack of follow through and disregarding external change.

This is the new way of doing strategy. Come join us.

70% of your strategies fail

We previously talked about how our 35,000 daily decisions are all at least semi automated and this automation is the culprit behind the well known 70% failure rate in strategic initiatives.

This failure rate has spurred a debate about whether you prefer good strategy or good execution. Obviously the answer is both and the research does show that the underlying reasons behind failure comes from both camps. But what is striking is how everyday those reasons are – from misinterpreting the opportunity over not aligning competencies to forgetting to allow for external change. Not really rocket science is it?

Imagine strategists explaining to the board some years later: “yeah, execution was awesome, but we did not really understand what we were working on” or “everything was going great, until the market dared respond!”. But is it fair to tease strategists like that? Or is something else going on? Lets examine each of the five reasons identified by McKinsey:

  1. Opportunity misinterpretation. So you failed to fully comprehend the environment and strategic positions five years into the future. Well that is the job right? Maybe, but we are all – regardless of intellect, personality and background – subject to availability bias, where we focus on our existing information aka WYSIATI – What You See, Is All There Is. For example Blockbuster completely misunderstood, where the market was heading and kept investing in their brick & mortar network.
  2. Poor design. So you understood the opportunity, but failed to design a fitting strategy. One of the most devastating biases in decision making is confirmation bias, where we look for information to confirm our hypotheses. For example Blackberry had the same information as everyone else, but focused on keyboard phones for B2B communication, when market went to touchscreen B2C entertainment.
  3. Competency misalignment. So you understood the opportunity and designed a fitting strategy only to forget to align organizational structure, processes and skills. No biggie – boards habitually add substantially different work to existing organizations, as most people are prone to overconfidence bias, where we believe we do not need much preparation or resources to complete a task. For example Sony never lost faith in their proprietary Betamax technology, even as the open VHS standard was quickly outpacing them .
  4. Lack of follow through. So you understood, designed and prepared for the opportunity, but the organization never got it done. Well, we have a preference for status quo – an emotional bias. It might seem lazy, but imagine this “hypothetical” situation: You worked as a top performing manager for 10 years and seen many strategies with limited impact. Suddenly the board sends you a new approach after a strategy retreat. Do you a) try to implement the high level thoughts in the slide deck or do you b) continue to do what has made you successful for 10 years? This also happens at company level. For example Newscorp kept investing in MySpace despite major market share losses to Facebook and they eventually got USD 34m for at USD 580m investment.
  5. External change. You are in the clear – you got the strategy and execution right – but the world changed. When we commit publicly to a course of action, it is extremely difficult to change and we prefer to avoid any risk of losses. Thus it can take long – sometimes devastatingly long – for a company to change strategy. For example think of how long it has taken for traditional car makers to embrace electric vehicles.

So maybe it was not fair to tease the strategists. There are powerful biases created millions of years ago to ensure our survival that now prevent even the smartest of people from rational decisions – let alone the complexity of strategy. We need a new way of doing strategy…