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Posts Tagged ‘Portfolio Management’

I hope you like the title of this post. It tees things up pretty well for what follows in this first of a two part series on cognitive biases.  The title demonstrates a Bias Blind Spot, suggesting the “I’m not biased, but THEY are”, and the famous “I knew it all along” type of thinking that accompanies the Hindsight Bias.  I had an opportunity to speak on behalf of Decision Lens at the recent Cambridge Health Institute conference on Portfolio Management last month, and one of the parts of my talk that stimulated the most interest and conversation, was the portion on cognitive biases and how structured decision making may help overcome them.  So, having had these conversations during and after the conference and given some thought to them in the context of portfolio decisions and project or product choices, I thought I would share a typical project selection type discussion that I have found myself in over the years and then break it down to look at what might be going on to help illustrate a few points.  Next post we’ll talk about possible remedies of structured and collaborative decision making and their potential to positively influence the process.  Enjoy.

Setting: A product or project Steering Committee meeting in a large company delivering  about 60% of its strategic planning goals from new product development (like many companies).

Committee Chair:  So we have a decision to make.  Which of these two product options are we going to pursue?  This is a critical strategic decision for us, and key to our ability to hit next year’s numbers.

VP R&D (Joe):  I think there’s not much to decide really, clearly WonderWidget is the superior option.  Acme consulting’s report said as much, and Maria, didn’t your team’s study find it to be preferred?

Director Market Research (Maria ): Well, I’m not sure how much value I put in Acme’s assessment, but yes, we did on the whole find WonderWidget the better choice. However, some groups preferred GreatGadget.  In fact, look at these numbers.  When I broke them out by age group against our target, an iron clad case can be made for GreatGadget.

VP R&D (Joe): OK, but c’mon. We’ve tried the GreatGadget approach before, and it has failed outright.  As I recall, the WonderWidget prototype shown to those groups didn’t even include our latest greatest improvements, isn’t that true Maria?

Director Market Research (Maria): Well, um…, I think…

VP R&D (Joe): I’m also not sure how we recruited those participants in the study, but they certainly didn’t seem representative of the typical savvy of most of our users, wouldn’t you agree Maria?

Director Market Research (Maria): I have some concerns about a couple of aspects of the study design, that may have contributed to what you observed.

VP Operations (Andre): Joe, there has to be considerable value in GreatGadget, it is right in our wheelhouse, it’s basically repurposing known technology!

VP R&D (Joe): I wouldn’t say that… Are you saying that because of the common interface?

VP Operations (Andre): We would have to be able to have GreatGadget commercially ready in a fraction of the time and cost!, 6 months max, and very little incremental investment based on our existing capabilities.

Director Market Research (Maria): We’ve had some quality complaints from product produced on that platform, though I do think it has some merit…

VP R&D (Joe): It may be faster and cheaper Andre, but Maria’s right, no one wants it.  We knew when we launched it that it may take a long time to work out the bugs.

VP Operations (Andre): Maria, those are minor problems, we can overcome those from my shop.  I’m 99% sure of it.

Director Market Research (Maria):  I didn’t say…

Committee Chair:  OK, I’ve been listening very objectively.  We have a track record of not always being very good at these decisions.  While we’ve been in a bit of a drought; we’re due for a win.  It sounds to me like we are reaching a general consensus that we should pursue GreatGadget.  So, how do we move forward?

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Now, let’s replay this conversation and take a little deeper look into what’s going on…

If you need to reference the biases discussed below, you can follow this link or those embedded in the discussion.

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Committee Chair:  So we have a decision to make.  Which of these two product options are we going to pursue?  This is a critical strategic decision for us, and key to our ability to hit next year’s numbers.

Comment >> Our committee chair leads out of the gate to trigger the Framing Effect, immediately limiting the options to two. Then throws in a dash of Focusing Effect, and Hyperbolic Discounting to drive the group to viewing the decision through the filter of next year’s number.

VP R&D (Joe):  I think there’s not much to decide really, clearly WonderWidget is the superior option.  Acme consulting’s report said as much, and Maria, didn’t your team’s study find it to be preferred?

Comment >> Joe responds with what could be Positive Outcome, Wishful Thinking and Optimism bias inferring a foregone conclusion about the route to successful decision. He then evokes the Interloper Effect about the objectivity of the consultants with no substantiation, and pursues the Confirmation Bias as he seeks corroboration for his position from Maria.

Director Market Research (Maria ): Well, I’m not sure how much value I put in Acme’s assessment, but yes, we did on the whole find WonderWidget the better choice. However, some groups preferred GreatGadget.  In fact, look at these numbers.  When I broke them out by age group against our target, an iron clad case can be made for GreatGadget.

Comment >> Maria counters Joe’s Interloper Effect with a dose of Ingroup Bias rewarding her group for their superior research efforts, she then seems to have an episode of the Framing Effect as she begins to parse the data in ways to support an argument that runs contrary to Joe’s position.

VP R&D (Joe): OK, but c’mon. We’ve tried the GreatGadget approach before, and it has failed outright.  As I recall, the WonderWidget prototype shown to those groups didn’t even include our latest greatest improvements, isn’t that true Maria?

Comment >> Whoa!  Maria hits Joe right in his Semmelweis Reflex as he responds to reject the new evidence that contradicts his position, he reels and strikes back with a combination of the Subjective Validation, The Primacy Effect, and Negativity Bias as he doesn’t substantiate the outright failure, gives the initial failure more emphasis than the current research, and gives more weight to the negative aspects of the previous effort, than any positives.  He then slips in an uppercut that tags Maria right in the Suggestibility Bias.

Director Market Research (Maria): Well, um…, I think…

Comment >> Maria is now suffering from some combination of False Memory, and Cryptomnesia as she fights her confusion to sort facts from suggestions and is likely moving down the path to some form of Information Bias to try to shore up the data to make the case when the data is either unavailable or irrelevant to the influence driven argument.

VP R&D (Joe): I’m also not sure how we recruited those participants in the study, but they certainly didn’t seem representative of the typical savvy of most of our users, wouldn’t you agree Maria?

Comment >> Joe doubles down on triggering Maria’s Suggestibility Bias with his Fundamental Attribution Error about the participants in the study.

Director Market Research (Maria): I have some concerns about a couple of aspects of the study design, that may have contributed to what you observed.

Comment >> Maria hints at the fact that she may be concerned about a variety biases, like the Hawthorne Effect, Herd Instinct, Expectation Bias, or  Selection Biases to which studies may be prone.

VP Operations (Andre): Joe, there has to be considerable value in GreatGadget, it is right in our wheelhouse, it’s basically repurposing known technology!

Comment>> Andre is new to the party, and comes with a BYOB (Bring Your Own Bias) of Status Quo, and the Mere Exposure Effect.

VP R&D (Joe): I wouldn’t say that… Are you saying that because of the common interface?

VP Operations (Andre): We would have to be able to have GreatGadget commercially ready in a fraction of the time and cost!, 6 months max, and very little incremental investment based on our existing capabilities.

Comment>> Andre goes on to fall victim to the Planning Fallacy, by likely underestimating the time and cost required to undertake this similar but entirely new effort.  He is likely in the throes of the Overconfidence Bias.

Director Market Research (Maria): We’ve had some quality complaints from product produced on that platform, though I do think it has some merit…

VP R&D (Joe): It may be faster and cheaper Andre, but Maria’s right, no one wants it.  We knew when we launched it that it may take a long time to work out the bugs.

Comment>> Joe makes a huge leap, and by way of the Authority Bias he attributes expertise to Maria and exaggerates her position through a bit of Egocentric Bias, and the Availability Cascade bias (a.k.a; if you say it enough it is true).  Then he pulls out the Hindsight Bias!

VP Operations (Andre): Maria, those are minor problems, we can overcome those from my shop.  I’m 99% sure of it.

Comment>> ???… Overconfidence Bias run amuck.

Director Market Research (Maria):  I didn’t say…

Comment>> Sorry Maria, looks like this train is leaving the station…

Committee Chair:  OK, I’ve been listening very objectively.  We have a track record of not always being very good at these decisions. While we’ve been in a bit of a drought; we’re due for a win.  It sounds to me like we are reaching a general consensus that we should pursue GreatGadget.  So, how do we move forward?

Comment>> Lastly, this is a mix of Bias Blindspot (believing you are not biased), Outcome Bias (judging the result rather than the quality of the decision at the time, i.e. knowing what you knew then), and the Gambler’s Fallacy that biases one to think that a series of losses must be leading to a win, while the odds in the meantime remain exactly the same… all with a False Consensus Effect cherry on top.

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Sound familiar?  In my next post I’ll talk about how to use a structured approach to decision making to help neutralize some of these effects and increase the chances that the group makes the best decision possible with the information available.

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