Cognitive Biases

“Hell is paved with good intentions.” – Saint Bernard of Clairvaux (1091-1153)

This week my commuting time “book” is “Way With Words: Writing, Rhetoric, and the Art of Persuasion” by Michael Drout of Wheaton College. He is an entertaining speaker and I’ve been enjoying his explanations of logical fallacies and the ways we are fooled by words and false arguments.

In addition to being fooled by others, sometimes we also fool ourselves. This is called Cognitive Bias and is the topic of the blog Putting Obama on the Couch by James Pethokoukis. He states, “Team Obama is filled with dedicated, hard-working folks trying to do the best job they can. But how to explain a series of puzzling economic decisions”?

Pethokoukis lists five psychological pitfalls that might explain the White House’s actions.

1 Anchoring Bias
This means relying too much on past results and choices. Mutual Funds are required by law to remind you “past performance is no indicator of future results.” In Obama’s case Pethokoukis thinks the White House is “hewing” to the original campaign agenda -- healthcare reform, green technology, when the looming global depression trumps alls. Old plans should be set aside to focus on the most urgent problem – the economy.

2. Attention Bias
This means ignoring the facts and data that do NOT support what you already believe in. How often has a spouse or friend accused you of not listening to news you don’t want to hear? Pethokoukis points out that Obama is cherry picking facts in order to argue against tax cuts. A broader look at historical data shows that tax cuts do stimulate the economy.

3. Overconfidence
Sometimes we can be just too full of ourselves. In Obama’s case his team was 100% certain of the impact of various spending multipliers or the exact number of jobs that will be saved or created by the “stimulus” before the exact details of the stimulus were actually determined by congress. In essence they were arguing that it really didn’t matter how we spent the $800 billion; the economy would be saved by the sheer size of the bailout.

4. Wishful Thinking
This is closely related to items 2 and 3. We convince ourselves that what we want must be true (overconfidence) and then looks for facts to back it up (Attention Bias). Pethokoukis accuses the White House of wishful thinking by projecting very optimistic growth and recovery from the stimulus package. There is no contingency planning for the stimulus failing or having only a modest impact on the economy.

5. Planning Fallacy
This means underestimating the difficulty or length of time for some task. It is extremely common during project planning and the frequent curse of computer software (and Politicians). When asked for an estimate a programmer sees in his or her head the “best case” scenario (Wishful Thinking). They don’t envision incompatibility issues across different web browsers, a bug in a vendor’s software library, a bug in Microsoft’s operating systems, security restrictions, late hardware delivery, disk crash, etc.
I attended a class in Estimation Techniques by Construx Software which taught that one should ask for a best case and worst case estimate on each task and use the average. Some tasks will work first time and others go way over time budget so expect a balance in the middle. The first time I used this a programmer was insulted. “I’m a professional,” he said and “knew how to estimate correctly.” Still he complied and I planned the project deliverables by averaging the best and worst times. In the end this programmer had to work overtime to meet the deadlines as obstacles pushed many tasks into the worst case estimates.

Bottom Line
As thinking human beings we are each subject to the Cognitive Biases listed above. Sometimes our mental blind spots can be deadly. Suppose your car breaks down in a remote area. Would you stay with the car or hike to civilization? Experts recommend you stay in or near your car. When the car is found you will be rescued. But if you are Wishful in thinking a town might be nearby and Overconfident in your hiking and wilderness skills, you might leave the car and become lost in the woods or incapacitated with a sprained ankle, snake bite, hypothermia, heat stroke, or dehydration. Now rescuers must search hundreds of miles of wilderness to locate you before you die.
When making life impacting decisions, be humble in your abilities, look at opposing facts, consider the worst cases, and think about what might happen if you are wrong.