Business psychology - We are not rational, how is that bad for business?
Tim Hoiseth
Chairman CNL Group | Business Psychologist | Sociologist | *Capacity building for the future
The understanding of how our mind works, and how behaviour arise from this have been discussed since the begging of civilisation. In todays world, here on LinkedIn. We are mainly interested in how to use this understanding in business, right? Marketing, decision making, work force dynamic, team- building, communication, politics and all the stuff we do today. We all know somewhat how our mind is put together, at least we think so. We look at tools, analysis and understandings of various things. But often forget to look at the flaws and cracks, that makes us so vulnerable. We are affected unconsciously by it every day.
Cognitive biases. For some an error, for others a tool.
Article serie: (See below for more articles)
So what we will discuss in this serie of articles is, how we see these biases in connection to business, marketing and work life in general. This would be the introduction article to it, and updates will follow.
What will we look at?
- How can you use these biases, or flaws in our mind to manipulate others.
- Or how to be aware of them, so you avoid getting involuntarily influenced.
That is up to you how you would like to use this information. But either way where your intentions are, I advice you to read and share. Ill try to not use so many advanced science words, and make it as easy for people from other professions to understand as possible.
Are we rational?
The typical viewpoint and an overall thought around our behaviour as humans, are that we are «rational beings». I bet you heard that before. We make decisions and behave in ways that benefit us. All the way from the conscious decisions to the unconscious ones. We are in the interest of doing behaviour that should max out on advantage and utility and minimise risk and cost towards what we value.
But the question would be, are we as humans really "rational beings»? I can assure you that we are not as rational as we would like to think we are, maybe not rational at all. And there are plenty of evidence that can be put forward as proof of that.
Just look at how we buy, consume and invest. How we communicate and influence each other. Cognitive biases are everywhere, in almost every setting we can encounter. There comes up some bias we experience and have in connection almost any situation.
What is a cognitive bias?
We can see cognitive bias as the way we humans make flawed and error decisions and action based on limited acquisition and/ or the processing of information that regards our self- interest, overconfidence, or attachment to past experience and memories.
We all have cognitive biases, and they make us do bad or stupid decisions, behave irrational and not connected with reality in our decisions. Do inaccurate judgements, on even the things we know to our fingertips. Even in some cases it may result in a total blindness or distortion of reality. Where our perception, or how we experience the world. Well…we see things that simply aren’t there.
To be aware of the effect these biases have on yourself and others, intentionally or unintentionally. It is essential to know how these biases work, and how they have influence on our minds.
How can we understand cognitive bias?
We can divide cognitive bias into three categories. Maybe some would argue two, or even four, five or more. We also have some codexes describing various amounts. But I have chosen to categorise these biases into three categories, something I belive describe the cognitive biases good. And also to make it simple for everyone to grasp. The most important is to understand its effect, and the use of it.
- Heuristic information biases: Or memory biases, to be more descriptive. We as humans process huge amounts of information daily, if we would have to make a well- thought trough decision on all of the things we encounter. We would be exhausted. Imagine doing a well thought trough decision on what type of washing powder to purchase, what yogurt brand, what toilet paper. Going trough the whole shopping card, thinking and processing this. You would use weeks to buy stuff. Instead we have something called «mental shortcuts», we store information from previous experiences. Stored in something called «schemas» to be able to make fast decisions, and save energy. This process of decision making behaviour has many biases to take use of, no system is perfect right?
- Ego biases: We as humans carry very close to ourselves the interest to protect our ego. Meaning our sense of self. That is the most precious to us of all things, especially unconsciously. So we make many errors on our decision making, related to our beliefs. Emotions like fear, anger, worry and many other emotions play an important role to control our behaviour. Effects such as peer pressure, the desire for acceptance, biases on judgment of people and others behaviour. And off course biases on how we see ourselves, are among the biases we have placed in this category. As we all know, the unconscious, and concept of self can be a quite complex thing, and errors occur in all of us.
- Social bias. Communication with others are for most of us a daily routine. And if you think about it, a quite complex procedure. You have one completely isolated mind, in terms of own thoughts, understanding, values and skills. Communicating with another totally isolated mind with the same attributes. Only able trough learned cultural dependent tools, such as sound and symbols to give, and receive information to each other. Some of us are good at communication, some are less good. But one thing is for sure, we all have cognitive biases connected to our social interaction with others. In such a fragile communication as just described. There are simply to many things lined up, that are open for our own mind to create biases on its own.
When these cognitive biases influence us, that is when the problems arise. As I would like to discuss here on Linkedin: How do these biases affect business, and work life? It is quite obvious that cognitive biases are bad for business, isn’t it? If you are not the one in control them at least.
It is like having the major elements of machinery and systems operating your business, coming with fatal errors and major flaws that we can’t control. We are only humans after all, aren’t we? And humans are still the main element of all your business. Workforce, clients or costumers are still all only people.
But many also use these effect to their advantage: Marketers, PR people, advertisements, the movie industry, policy makers, politicians and politics in general just to name a few.
Article list guide on cognitive biases and its use in business (Updates comes with new posts, follow to stay tuned)
