(Behavioural Economics cont. 3)

Cognitive Bias

Introduction

Behavioural economics came out of cognitive psychology, ie humans are irrational; you prefer to act on least effort; use heuristics and biases in decision-making; generally our brains are on auto-pilot.

Our brains are not wired to have the rational decision-making system operating all the time.

The brain is more worried about loss aversion, ie you are more concerned about losses than gain (you hate to lose more than you value a gain).

To handle things, fast thinking has developed shortcuts that most of us are familiar with, ie cognitive bias (a pattern of behaviour that is predictable). Based on this you can design a pattern of behaviour or activities to either encourage or disencourage that behaviour and can determine if the change is going to be successful.

NB Everybody has cognitive biases; even experts, ie they might have more information than the general public but as individuals they have biases.

Types of Cognitive Bias

However, there are around 200 types of cognitive bias that can be grouped into 4 main heading, ie

(source: Edwina Pike, 2022)

i) social (interaction with other people; people are very tribal, ie a group of people that has come together with a collective purpose; belonging to a tribe is your number one priority as it makes you feel safe, eg need to please the leadership of your tribe; many different types of tribes like family, work, social, religious, ethnic, sporting, projects, etc that have a common goal and can have a massive influence; able to swap your behaviours around to suit different tribal requirements associated with acceptable social behaviours.

NB Many changes fail owing to a lack of understanding about how the change will impact tribal conditions within an organisation and neglecting to identify the important leaders in each tribe, including informal leaders - more detail, see other parts of the Knowledge Base.

If a tribe lacks credible leadership, people will look elsewhere, like to a union that can provide a strong and safe environment for employees to belong to in an organisation.

In fact, a particular change project becomes a tribe with its own set of rules and preferred behaviours.

Furthermore, most people dislike being excluded. As a result, at times people will do some strange things to reduce the chance of being excluded, ie in order to stay on side with a tribe. The price of inclusion can be some strange behaviours, like football hooligans, etc.

Some of the tribes become self-managing in their behaviour.

Each tribe tries to reduce intra-tribal conflict, ie aims for consensus. If a member upsets are the tribe members, there is the risk of possibility exclusion.

To avoid conflict and difficult conversations within a tribe, the focus is often on trivia, ie non-controversial issues (law of triviality).

Each tribe
"...actively discounts alternative points of view and isolates itself from outside influences..."
Edwina Pike, 2022

Barriers easily form between tribes and can result in silos forming.

It has been found that most people have around 5 trusted friends and around another 10 close friends or acquaintances; the brain can handle anything up to 150 relationships; over 150 these relationships become more transactional and fracture into silos of common interest with each silo having its own rules, regulations, etc; each silo starts to develop its own characteristics which are different from other silos, ie have their own barriers to entry. Generally, members of each group speak highly of each other in the same group and badly of members in other groups, ie
"...only speak good of my team and bad of others..."
Edwina Pike, 2022

This can be found in organisations: marketing does not like accounts, production does not like administration, branches do not like head office, etc.

To try to get people from different tribes to work together, ie collaborate, the barriers between the tribes need to be eliminated. This can be done by creating friendships and trust between tribal leaders, ie need to create a good relationship between the leaders so that each tribe's members will see themselves as collaborators.)

ii) inertia (preference for the status quo, ie like things as they are now - for more detail see elsewhere in the Knowledge Base).

iii) data (how you process data depends on how the data is presented to you, ie positively rather than negatively; first impression counts; the more recent data is ranked higher than the older data, ie recency; ideally be the first message on the topic; most messages need to be repeated around 10 times before they stick, ie repeatability
"...need to repeat the message until recipients speak it back to you in their own words..."
Edwina Pike, 2022

This can feel uncomfortable as you feel like a stuck record.

Need to ensure that the tribal leaders are giving the same message as management. If a disconnect with tribal leader's message, the tribal leader's message will be favoured and accepted by staff.

Branding is a shortcut and of value as most people don't read the detail.

iv) ego (self)

It is about 3 elements

- egocentric (I'm always right, ie I have the best solution!!!!)

- overconfidence (over believe in what you can achieve; overconfidence in what you can deliver)

- hindsight (can predict the future based on the past)

Each of these 3 needs to be handled with care, ie sometimes you need to build up a person's ego by praising them or giving positive feedback.

NB Assumptions are dangerous, especially when they are incorrect.

Summary of 4 main headings of cognitive bias