It’s easy to look at the list of cognitive biases and become almost paralysed with fear thinking of all the judgment mistakes we could be making, in both our business and personal lives.
There is also another way to think about biases: how can we use them to get positive outcomes?
The delivery framework dilemma
Imagine that you are a delivery manager in a software company and you are about to start a project with a new client. This client is a startup founder and has never built software before.
Because you have more than 15 years of experience and you care deeply about the quality of the work your team will deliver, you want to convince the client to use a framework for project management.
Scrum seems to be the optimum choice for this project and you are convinced this would help the client to get the most out of their limited budget, so they can launch the first version of their product.
In the kick-off meeting presentation you include some statistics from a research paper you found recently.
In a study based on the outcomes of 600 software projects, a statistical model was developed, to predict what will happen if they use a project management framework or not.
The measured outcomes were based on whether the teams would finish the project on time and on budget.
You could present the data in one of several ways.
If the 600 teams would use Scrum in their projects:
- 200 of the projects would be delivered on time and on budget
- A 33% chance of delivering on time and on budget, 66% possibility they will go over time and over budget
- 400 projects will not be finished on time and on budget
- A 33% chance that no projects will go over time and over budget, 66% possibility that all projects will go over time and over budget
Which one would you use?
Do you think that the chosen description will have an influence on the customer’s decision?
This is the framing effect, which happens when identical scenarios, described in different ways, can result in vastly different choices and decisions being made by the same person.
Types of framing
There are several documented framing effects.
Contrast effect, the enhancement or reduction of a certain stimulus’s perception when compared with a recently observed, contrasting object.
Decoy effect, where preferences for either option A or B change in favor of option B when option C is presented, which is completely dominated by option B (inferior in all respects) and partially dominated by option A.
Default effect, the tendency to favor the default option when given a choice between several options.
Denomination effect, the tendency to spend more money when it is denominated in small amounts rather than large amounts.
Distinction bias, the tendency to view two options as more dissimilar when evaluating them simultaneously than when evaluating them separately.
WHAT THIS MEANS FOR YOU
The trouble with framing is that you are doing it even if you don’t want to.
Everytime you present some options to a customer or a colleague, there is an implicit choice to show or not some aspects of the whole picture.
This usually happens without us even realizing it.
Wouldn’t it be wise to do this consciously, with an objective in mind, after evaluating the moral and ethical dimensions, rather than leaving it to chance?
PS.
The answer to last week’s challenge. The 3 generally accepted functions of money:
- Store of value.
- Unit of account.
- Medium of exchange.
The more you think about this, the more you realize that our default pricing decisions are usually being made without taking into account all dimensions of money.