How to control the optimism bias - Deepstash

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Cognitive Bias: How Your Mind Plays Tricks on You and How to Overcome That

How to control the optimism bias

  • Be skeptical of your own rosy expectations for your work. 
  • Assume projects will be more difficult and more expensive than you initially think they will. 
  • Don't trust your good ideas to manifest through positive thinking - be ready to fight for them.
  • Trust the numbers. Numbers are firm but fair, and getting intimate with your business's cash flow can help you make more rational decisions.

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Confirmation bias

People don't like to rethink their beliefs once they are formed. 

We would rather ignore information that would challenge our ideas than engage with threatening new information. This is ...

Availability heuristic

Our brain likes to take shortcuts to solve a problem when normal methods are too slow to find a solution. 

The problem with this approach is that frightening events are easier to recall than every-day events. We should be aware that alarmist news broadcasts don't help in an accurate sense of events.

Anchoring

We have a tendency to stubbornly hold on to a number once we hear it and gauge all other numbers based on the initial number, even if the information is not that relevant.

For example, if customers are limited to 'four per customer' they are more likely to buy four, even if they did not initially intend to do so.

The Way We Delude Ourselves
The Way We Delude Ourselves

Cognitive Biases are a collection of faulty and illogical ways of thinking which are hardwired in the brain, most of which we aren’t aware of.

The idea of cognitive biases was invented ...

Hyperbolic Discounting

It's a tendency to heavily weigh the moment which is closer to the present, as compared to something in the near or distant future.

Example: If you are offered a choice of $150 right now or $180 after 30 days, you would be more inclined to choose the money you are offered right now. However, if we take the present moment out of the equation, and put this offer in the distant future, where you are offered $150 in 12 months or $180 in 13 months, your choice is likely to be the latter one.

Common Biases
  • Actor-Observer Bias: the way the explanation of other people’s behaviour tends to focus on the influence of their personality while being less focused on the situation while being just the opposite while explaining one’s own behaviour.
  • Zeigarnik Effect: when something unfinished and incomplete tends to linger in the mind and memory.
  • The IKEA Effect: when our own assembling of an object is placed at a higher value than the other objects.
  • Optimism Bias: makes us underestimate the cost and duration for every project we try to undertake or plan.
  • Availability Bias: makes us believe whatever is more easily available to our consciousness, and is more vivid (or entrenched) in our memory.
Status quo bias
Status quo bias

Status quo bias is when we prefer that our environment and situation should remain unchanged.

The bias has the most impact in the area of decision-making, as we tend to pre...

Common Explanations for Status Quo Bias

These explanations are all irrational for preferring the status quo:

  • Loss Aversion: When we make decisions, we weigh the potential for loss more heavily than the potential for gain.
  • Sunk Costs: We continue to invest resources like time, money, or effort into a specific endeavor just because we are already invested, not because it is the best choice.
  • Cognitive Dissonance: In decision-making, we an option as more valuable once we have chosen it. Considering an alternative can cause cognitive dissonance.
  • Mere Exposure Effect: It states that people prefer something they've been exposed to before.
  • Rationality vs. Irrationality: We may choose to keep our current situation because of the potential transition cost of switching to an alternative. It becomes irrational when we ignore choices that can improve a situation because we want to maintain the status quo.
Status Quo Bias examples
  • When offered several sandwich options, individuals often choose a sandwich they have eaten before.
  • In 1985, Coca Cola reformulated the original Coke flavor and started selling a "New Coke." Although blind taste tests found many consumers preferred New Coke, consumers continued to buy Coke Classic. New Coke was discontinued in 1992.
  • In political elections, the current candidate is more likely to win than the challenger.