The contrast principle: Impact on decision-making and company culture

Whether in business or private life, our perceptions and decisions are often clouded by cognitive biases. The "contrast effect" is one such bias that significantly influences how we evaluate people and situations. In this article I'll explain this seemingly simple phenomenon with a focus on business; how it affects fair judgment in hiring and impacts company culture overall.

Understanding the contrast effect

The contrast effect is a cognitive bias where our judgments are shaped by a recent or simultaneous exposure to something similar but of different value.

In essence, it's our tendency to compare and evaluate based on recent experiences.

This cognitive bias is no new revelation. The philosopher John Locke observed it centuries ago when noting how lukewarm water could feel hot or cold depending on prior exposure to hot or cold water. In the 20th century, Wilhelm Wundt identified contrast as a fundamental principle of human perception.

The most illustrative example of the contrast effect is placing the same object on different backgrounds.

The two inner grey rectangles are exactly the same shade, but the bottom one appears to be darker because it is surrounded by a lighter shade than the top one.

Using the contrast principle in marketing strategies

Naturally, marketing strategies can use this cognitive bias to nudge the customer towards a certain product or service.

Here are a few examples from marketing and sales:

• Pricing strategies: Offering a high-end product followed by a mid-range product makes the mid-range product seem more affordable by comparison.
• Product placement: Placing a more expensive item next to a similar, but cheaper item can make the cheaper product appear like a better deal.
• Sales and discounts: "Buy one, get one 50% off" encourages customers to buy more than they initially intended.
• Marketing campaigns: By showing the before and after effects of using a product, they highlight the dramatic contrast, making the product more appealing.

Hiring biases and Amazon's lesson

Now, let's apply the contrast effect to the world of hiring. Imagine a job candidate appearing more or less suitable based on the person interviewed just before them.

Amazon, a business giant, provides a stark example. The company tried to automate its hiring process using artificial intelligence, but it soon discovered a significant problem. The system favoured candidates who seemed similar to those hired in the past, and this unintentional bias led to gender inequality in hiring. Most of the previously hired candidates were men. Amazon eventually had to abandon this project because it was failing to promote diversity and inclusivity.

Amazon's story emphasizes the importance of diversity in the business world. When a company hires individuals who are almost identical to the current workforce, it risks creating a stagnant, "status quo" culture. This stifles innovation and overlooks many great candidates with unique perspectives. In contrast, a diverse workforce brings fresh ideas, creativity, and a broader range of experiences.

Apart from hiring, another example may be employee evaluations. When assessing employee performance, managers might unintentionally fall into the contrast effect. An employee may seem like a top performer when compared to a group of underperformers, but might not receive the opposite in a more high-achieving team.

The context in which we evaluate a subject plays a much more significant role than we are aware of at first glance.

We are naturally inclined to assess and make decisions by comparing everything to our previous experience. The context in which this happens is quite important, as you can see in that simple example of grey rectangles above.

How to mitigate contrast effect when hiring?

As we have learned from Amazon's example, AI is (still) not the best solution, although it seems perfectly logical and impartial, as opposed to people's subjective judgement.

But, there are some effective tips for a fair and objective hiring process.

For example, organizing a diverse hiring panels includes individuals from various backgrounds in the interview process. Two (or more) heads are better than one, and each individual will view the candidate through different personal "lenses".

Shifting from reading resumes to skills-based assessments is a practical and valuable approach. It focuses on a candidate's abilities and aspirations rather than their resumes and background. Try giving the candidates a few realistic challenges or problems they may encounter in their potential future job. Evaluate based on how they would solve them, and how that integrates into your company's culture.

The contrast effect is just one of the many cognitive biases that can affect our judgment in the business world. By recognizing and addressing the biases, we can create fairer hiring processes and more diverse, innovative company cultures.

Diversity is not merely a buzzword — it brings fresh perspectives, new ideas, and a broader range of experiences to the table. A diverse workforce can better adapt to changing markets, serve a wider customer base, and foster a culture of creativity and inclusion, all of which are essential for a company's long-term success.