We like to think we are rational decision-making professionals. But the research shows we all have a vast number of biases.
Cognitive biases are systematic patterns of behaviour, which means we deviate from making rational judgments. Many of these biases are mental shortcuts, called heuristics, that our brain uses to help us make decisions.
Wikipedia categorises 180+ cognitive biases, a majority under the heading of ‘decision making’. These can be organised into four categories: biases that arise from too much information, not enough meaning, the need to act quickly, and the limits of memory. (see infographic)
I want to focus on just one of these biases – optimism bias.
‘Optimism bias (also known as unrealistic or comparative optimism) is a cognitive bias that causes a person to believe that they are at a lesser risk of experiencing a negative event compared to others.’ [Flyvbjerg, 2008]
Professional decisions and forecasts in policy, planning, and management can be impacted by optimism bias, for example, the costs and completion times of planned decisions tend to be underestimated and the benefits overestimated.
Researchers such as Professor Bent Flyvbjerg have identified these problems in business cases for transport projects.
Estimating the cost or expected benefits of a project involves elements of subjective estimation or professional judgement. Often there is no relevant data from past projects or it is too costly to collect.
So cognitive biases can result in less than ideal recommendations. Optimism bias is obviously one aspect, Flyvbjerg refers (tongue in cheek) to ‘strategic misrepresentation or lies’ – the project proponents want to see a project proceed. Or professionals are just optimistic about the future and their expertise and experience.
The UK Treasury promoted the use of uplift factors to deal with optimism bias in cost estimates unless the estimates were based on a ‘reference class’ or results of comparable projects carried out elsewhere.
Professionals make assessments based on the information they have at hand and don’t take deliberate steps to seek out other information – ‘availability bias’.
Then there is ‘confidence bias’ where professionals involved in projects tend to believe in their ability to deliver projects and downplay potential challenges that may arise in reality.
‘Anchoring bias’ involves the systematic tendency to understate the extent to which actual outcomes could differ from the assumptions incorporated into an estimate.
So as professionals we need to be aware of our natural behavioural tendencies and actively manage the risks.
To significantly reduce the various forms of bias the following techniques are suggested:
- Use the best available data
- Provide a clear statement of the assumptions
- Take particular care to identify all possible costs
- Use reference class forecasting
- Use independent peer reviewers
- Undertake sensitivity analyses
Use best practice techniques to significantly reduce the impact of Optimism Bias.
Flyvbjerg, B. 2008. ‘Curbing Optimism Bias and Strategic Misrepresentation in Planning: Reference Class Forecasting in Practice’, European Planning Studies, vol. 16, no. 1, pp. 3-21