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<\/div>2. Bandwagon effect.<\/strong> How can small business owners leverage this bias? If everyone else is onboard with a plan or proposal<\/a>, there may be good reason to question why. Seek alternatives and remember that groupthink can destroy a team’s effectiveness and limit a manager’s ability to choose between viable options.<\/p>\n 3. Confirmation bias.<\/strong> How can small business owners leverage this bias? Actively seek out disconfirming information; ask others, “Why will this not work? What is wrong with my idea?” Recognize that you are a writhing mass of preconceived notions and make every effort to fiercely debate each of those.<\/p>\n 4. Availability heuristic.<\/strong> How can small business owners leverage this bias? Beware the influence of suggestions or anecdotes not based in fact – we tend to remember the stories we hear. Because certain memories are easily available to us, we allow those to influence our decisions.<\/p>\n 5. Gambler’s fallacy.<\/strong> How can small business owners leverage this bias? It’s simple – don’t do it! As tempting as it may be to continue a losing effort, recognize that you are throwing “good money after bad” and base your decision-making on rational factors and mathematical certainty, not on a false belief that somehow the world will tip your way you play “just one more time.”.<\/p>\n 6. The “sunk cost” effect.<\/strong> How can small business owners leverage this bias? Make your decisions based not on what you have already done or how much you have already invested; ask yourself this: “From today forward, how much effort and money will I need to invest to make ____ happen?” Fill in the blank, then assess the value to your business based only on that information, and you are on your way down the road to rationality.<\/p>\n
\nWe are prone to believe that if many others do something, we can or should do the same. We see this daily with people buying products, attending movies, and even joining political movements. Just because others do or believe something does not necessarily mean it is the best course of action or the most valuable philosophy. Herd behavior and conformity can hurt your business decisions and impact your ability to consider alternatives and define problems.<\/p>\n
\nClosely related to the Bandwagon effect is the confirmation bias. This is a predisposition to look for or information that confirms something we already believe. In other words, we prefer to see data that supports what we already “know,” so if you are politically conservative, chances are good that you prefer the information you get from Fox News. On the other hand, if you are a liberal, you would probably be more comfortable consuming your news via the Huffington Post.<\/p>\n
\nWhen we have a vivid memory of an event or outcome, we are prone to believe that the event or outcome is more probable than other equally likely events. In other words, if you can easily bring something to mind, you will likely believe that is what will happen again. For instance, even though all data demonstrates that airline travel is one of the safest forms of transportation, the memory of a recent air disaster will make us believe that air travel is risky; as the memory of the event fades, our belief in the safety of the 747 increases.<\/p>\n
\nMany addicted gamblers will tell you that they lost all of their money because they sincerely believed they could win it back. After all, “the odds were in my favor.” This belief led to them playing the game just “one more” time. The belief that because you just lost 10 spins of the roulette wheel in a row, the odds are that you will win on the 11th is a dangerous fallacy; in a game of chance, each new spin of the wheel has the exact same chances as the last spin, no more, no less. In other words, each time you flip a coin, the odds are exactly the same 50-50 as they were on the last flip, so the belief that future probabilities are changed by the events that proceeded is a dangerous trap.<\/p>\n
\nRelated to the gambler’s fallacy, and equally dangerous, is the belief that because you have already “invested” time or money in an endeavor, this is reason enough to pursue that effort. Past costs, whether an investment of time or money, should never be used in evaluating a decision. In economic valuation, past cost can never be a factor for arriving at a value, and formulas such as NPV (net present value)<\/a> will never consider money already spent. A great illustration of sunk cost? Let’s say you paid $100 to go to a football game. After the first half, your team gets killed; the score is 53-0, and you are having a rotten time. You have a choice: should you leave and do something you enjoy more than watching your team go down to abject defeat? Or should you stay and justify your suffering because you already spent the $100? The answer? Ignore the money you spent – it is gone, down the tubes – and LEAVE!<\/p>\n
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