How do cognitive biases distort your perception of risk and reward?

Many of us who lead strategy building process assume that their initial estimates and projections are solid foundations. However, relying too heavily on these first pieces of information can skew your entire decision-making process. - Always critically assess and validate your first estimates. - Gather Multiple Data Points - Encourage Diverse Opinions, more importantly one that are not in favour. - Continuously update estimates and projections - Educate your team about anchoring bias to improve overall decision-making

Los sesgos cognitivos pueden distorsionar significativamente nuestra percepción del riesgo y la recompensa. Por ejemplo, el sesgo de confirmación nos lleva a buscar información que respalde nuestras creencias previas, subestimando riesgos evidentes. El sesgo de disponibilidad hace que sobrevaloremos eventos recientes o dramáticos, alterando nuestra evaluación objetiva del riesgo. Además, el optimismo ilusorio nos lleva a sobrestimar la probabilidad de resultados positivos y subestimar los negativos. Estos sesgos pueden conducir a decisiones imprudentes, ya que influyen en cómo interpretamos la probabilidad y la magnitud de los riesgos y recompensas, alejándonos de una evaluación realista y equilibrada.

Anchoring is a typical bias that happens at work and life in general. It is commonly used in negotiations to place a sort of "bar" by stating the first price (or time, etc.) for something and things move from there. It is prevalent because our brain looks to efficiently make decisions, so it will "latch on" to previous information that can be outdated or irrelevant. Techniques to avoid this: i) perform objective and individual analysis of the information ii) ahead of the meeting write down what factors need to be answered before taking a decision, iii) talk with other people to validate the data and/or your point of view, iv) answer the question "do you have good evidence or data to make a decision?"

Confirmation bias is somehow built into our perception. It's not something we can turn off, just by knowing of it. But it is something we can work against. By trying to make things measurable. By defining criteria in advance and then only checking whether our expectations are met without adjusting. By seeing a deviation from our plan and reality not as a loss, but as a gain in knowledge. This is often easier said than done, because everyone actually has to meet targets. But it is still up to us to make others understand what these insights mean. And the alternative to "accepting this deviation from our plan" is to twist numbers and lie to each other's faces. We all know about the long-term effects. Lying doesn't help anyone.

Overconfidence can be a business killer, Kindom mentality can be lethal to upcoming opportunities and current business. The overconfidence effect can cause you to overestimate your company's abilities and market position, leading to risky decisions and neglect of potential challenges. It's crucial to balance confidence with a realistic assessment of your business environment. Two recommendations based in experience : Seek External Feedback: Invite feedback from peers, industry experts and advisors. Acknowledge Limitations: Be honest about your weaknesses and areas for improvement. Balancing confidence with realism helps avoid the pitfalls of overconfidence

The bottom line of this comment is: herd mentality is not a good habit. Nodding because others are doing it is nothing more than a sign that you don't care about what you're doing. There may be a strategic delay in saying what you think at the right moment, but not saying what you think to avoid conflict is not the way to go. There is always a way to express your opinion in a respectful way. If the decision is different or the group decides otherwise, you have lost nothing by expressing your honest opinion. Either you learn from the group or the group learns from you. And if you get into a conflict simply because you express your opinion respectfully and without attacking others, then you may be in the wrong place.

In my experience, this is the one cognitive bias that trumps them all because it can include other biases like "risk aversion", "loss aversion" and "confirmation". There are biological, personality and hereditary reasons for this bias to be so prevalent, but it can be avoided: form your own opinion. Some helpful tips are: i) perform your own analysis of the situation and draw your own conclusions, ii) ask other people that you trust and that are knowledgeable to validate the concepts, iii) abstract yourself from your personal biases and look at the situation from the outside, and iv) reflect before taking a decision. Pink Floyd's line "did you exchange a walk on part in a war, for a lead role in a cage" speaks to the importances of this.