Think You're Rational? Think Again.

[4-min read]

Cognitive biases act as mental shortcuts, helping you make quick decisions every day. Unfortunately, they often lead to errors in judgment.

Understanding them can help you make better choices.

Reflecting on my experiences, I’ve noticed how these biases have influenced my decisions.

Anchoring Bias in Negotiations

I remember entering negotiations for a software license renewal. The vendor’s initial offer was shockingly high, triple our previous agreement.

That figure echoed in our discussions, shaping our perspective.

Despite negotiation attempts, we settled on a number significantly higher than planned.

It was only after the deal that we realized how that first high quote had anchored our expectations. It led to a less favorable outcome than we could’ve achieved.

This experience taught me how initial figures can disproportionately influence final decisions.

Confirmation Bias in Sales

Years ago, my team and I poured our energy into a major sales proposal. Every detail was scrutinized, from research to rehearsing our pitch.

We believed in our approach wholeheartedly. But the client's decision was a jolt.

We placed 4th out of 5.

In our post-mortem, we recognized a hard truth. We’d been so wrapped up in our narrative that we ignored critical client cues.

It was a classic case of confirmation bias blinding us to a broader perspective.

We focused more on information that supported our beliefs and overlooked key signals.

Sunk Cost Fallacy in My Garden

After moving my family into our new home last year, I dedicated myself to transforming our barren backyard into a lush garden.

Months of effort started to pay off until a severe summer heatwave hit.

Despite my best efforts, the young trees and shrubs began to wither in the hot Arizona sun.

Refusing to accept defeat, I invested more — shades, pots, extra water — but to no avail. The more I lost, the harder I tried to save them.

The sunk cost fallacy kept me investing time and resources into a lost cause. It was a tough lesson in letting go and recognizing when to cut your losses.

Understanding Cognitive Biases

These experiences might help you recognize how cognitive biases shape your decisions. Understanding them is key for clearer judgment.

I’ve created a cheat sheet with examples of 16 cognitive biases. Click below for your free high-res PDF.

Let’s explore 5 of them a little closer:

1. Availability Heuristic

• What It Means: You judge things based on information readily available or easily recalled.

• Business Example: You might overestimate a project’s risk after recalling a similar recent failure. This could lead to a missed opportunity.

• Personal Example: You could think car accidents are more common than they actually are after hearing about one recently. It might cause you unnecessary anxiety.

2. Endowment Effect

• What It Means: You value things more just because you own them.

• Business Example: You might resist changing a project you initiated. This could lead to sticking with a less effective plan.

• Personal Example: Holding on to items you no longer need because you feel they’re special. It can clutter your space.

3. Negativity Bias

• What It Means: You focus more on negative information than positive.

• Business Example: Despite having 100 positive customer reviews, you fixate on the one negative one. It could lead to wasted time worrying.

• Personal Example: Dwelling on one small criticism more than numerous compliments. It can lower your self-esteem.

4. Outcome Bias

• What It Means: You judge decisions by their outcomes, not how well they were made.

• Business: Praising a risky business decision because it accidentally led to positive results. This might encourage reckless decision-making.

• Personal: Regretting a well-thought-out choice because it didn't work out as expected. It might discourage you from making informed decisions in the future.

5. Spotlight Effect

• What It Means: You believe people notice your actions or appearance more than they actually do.

• Business: Overestimating how much your colleagues notice a small error in your work. It can increase your stress unnecessarily.

• Personal: Feeling self-conscious about a small flaw in your appearance. This can affect your social interactions.

Making It Work for You

Now that you’ve seen how these cognitive biases can subtly influence both your professional and personal life, here are 5 tips to help you apply this understanding to make better decisions.

1. Challenge Assumptions: Regularly question your initial thoughts. Ask, “Is this really true, or is it just my usual way of thinking?”

2. Seek Diverse Opinions: Talk to people with different perspectives. They can offer insights that counter your biases.

3. Reflect on Past Decisions: Look back at your decisions. Identify where biases might have influenced you and learn from that.

4. Slow Down Decision-Making: Don’t rush. Take time to consider all aspects, reducing the impact of snap judgments.

5. Keep Learning: Stay informed about cognitive biases. The more you know, the better you can recognize them in action.

Applying these tips can help you make more balanced and informed decisions, both in your career and personal life.

Diving Deeper

There are many more cognitive biases than the 16 discussed here. Want to go down the rabbit hole? Check out this huge list from The Decision Lab.

For my book readers, Thinking, Fast and Slow by Nobel laureate Daniel Kahneman explores how our minds work, especially around cognitive biases and decision-making.

And I love this TED Talk from Dan Ariely: Are we in control of our own decisions?

Connecting the Dots

Recognizing cognitive biases isn’t just about understanding theories.

It’s a practical skill that shapes how you interact with the world.

By being aware of these biases, you can make more informed, balanced decisions in both your personal and professional life.

Until next time, stay curious and mindful, my friend.

Justin