Data-Driven Decisions: Why You, Your Customers, and Your Partners Don't Make Them

Total Page：16

File Type：pdf, Size：1020Kb

Data-Driven Decisions: Why You, Your Customers, and Your Partners Don't Make Them SHERIDAN HITCHENS Sheridan Hitchens What is the objective of our work in data? How do we help our organizations achieve success? We help make better decisions - Who? - Executives, Staff, Customers, Partners, Regulators - How? - More accurate/certainty, Faster, Cheaper Example - View Dashboard - Make Decision to increase marketing spend - Improve Revenue Homo Economicus People make Utility Maximizing Decisions Eight types of Behavioral Bias Biased Coin Heads Or Tails? 60% 40% #1 Outcome Bias We judge the quality of the decision by the outcome that occurred The Price of Hot Coffee #2 Anchoring We have a tendency to anchor our estimates on numbers that may not be relevant Guess The Price of the Flight! Route: Las Vegas -> London (LHR) Return Airline: British Airways Fare: First Class Unrestricted Booked: 30th January Leave: Monday 12th Feb Return: Monday 19th Feb Your 95% certain confidence interval Low End: ? High End: ? The Cost of the flight: $23,812.38 #3 Estimation Bias We are way too over-confident in our ability to make good estimates College Basketball Tickets #4 The Endowment Effect We value things that we own more than things we don’t I give you a $50, but you have to play my game! Game 1 Game 2 A B A B Keep $30 Flip a coin for Lose $20 Flip a coin for the whole $50 the whole $50 43% chose to gamble 61% chose to gamble #5 Loss Aversion People prefer to avoid losses rather than make the equivalent gain Silver Option: Our Standard set of Services Buy $10 Gold Option: Which option do Our Premium set of Services we choose? Buy $20 Platinum Option: Our Uber-premium set of Services Buy $50 #6 The Goldilocks Effect We are generally more likely to choose a middle option when presented with 3 or more choices Your company’s 401K Plan #7 Nudge Positive Reinforcement and Indirect Suggestions can have meaningful impacts on decisions Woo Hoo! Correlation! Source: http://tylervigen.com #8 Apophenia or Paternicity We have a tendency to find patterns in data and ascribe meaning to them What can we do? # 1 Training Systematic training to develop awareness around biases #2 Cultural Change Calling out our the biases in real time in our meetings #3 Automate Evaluating whether the decision should even by made by a human Sheridan Hitchens [email protected] https://www.linkedin.com/in/sheridanhitchens/.

Copy Link

Recommended publications

A Task-Based Taxonomy of Cognitive Biases for Information Visualization
A Task-based Taxonomy of Cognitive Biases for Information Visualization Evanthia Dimara, Steven Franconeri, Catherine Plaisant, Anastasia Bezerianos, and Pierre Dragicevic Three kinds of limitations The Computer The Display 2 Three kinds of limitations The Computer The Display The Human 3 Three kinds of limitations: humans • Human vision ️ has limitations • Human reasoning 易 has limitations The Human 4 ️Perceptual bias Magnitude estimation 5 ️Perceptual bias Magnitude estimation Color perception 6 易 Cognitive bias Behaviors when humans consistently behave irrationally Pohl’s criteria distilled: • Are predictable and consistent • People are unaware they’re doing them • Are not misunderstandings 7 Ambiguity effect, Anchoring or focalism, Anthropocentric thinking, Anthropomorphism or personification, Attentional bias, Attribute substitution, Automation bias, Availability heuristic, Availability cascade, Backfire effect, Bandwagon effect, Base rate fallacy or Base rate neglect, Belief bias, Ben Franklin effect, Berkson's paradox, Bias blind spot, Choice-supportive bias, Clustering illusion, Compassion fade, Confirmation bias, Congruence bias, Conjunction fallacy, Conservatism (belief revision), Continued influence effect, Contrast effect, Courtesy bias, Curse of knowledge, Declinism, Decoy effect, Default effect, Denomination effect, Disposition effect, Distinction bias, Dread aversion, Dunning–Kruger effect, Duration neglect, Empathy gap, End-of-history illusion, Endowment effect, Exaggerated expectation, Experimenter's or expectation bias,
[Show full text]
Communication Science to the Public
David M. Berube North Carolina State University ▪ HOW WE COMMUNICATE. In The Age of American Unreason, Jacoby posited that it trickled down from the top, fueled by faux-populist politicians striving to make themselves sound approachable rather than smart. (Jacoby, 2008). EX: The average length of a sound bite by a presidential candidate in 1968 was 42.3 seconds. Two decades later, it was 9.8 seconds. Today, it’s just a touch over seven seconds and well on its way to being supplanted by 140/280- character Twitter bursts. ▪ DATA FRAMING. ▪ When asked if they truly believe what scientists tell them, NEW ANTI- only 36 percent of respondents said yes. Just 12 percent expressed strong confidence in the press to accurately INTELLECTUALISM: report scientific findings. ▪ ROLE OF THE PUBLIC. A study by two Princeton University researchers, Martin TRENDS Gilens and Benjamin Page, released Fall 2014, tracked 1,800 U.S. policy changes between 1981 and 2002, and compared the outcome with the expressed preferences of median- income Americans, the affluent, business interests and powerful lobbies. They concluded that average citizens “have little or no independent influence” on policy in the U.S., while the rich and their hired mouthpieces routinely get their way. “The majority does not rule,” they wrote. ▪ Anti-intellectualism and suspicion (trends). ▪ Trump world – outsiders/insiders. ▪ Erasing/re-writing history – damnatio memoriae. ▪ False news. ▪ Infoxication (CC) and infobesity. ▪ Aggregators and managed reality. ▪ Affirmation and confirmation bias. ▪ Negotiating reality. ▪ New tribalism is mostly ideational not political. ▪ Unspoken – guns, birth control, sexual harassment, race… “The amount of technical information is doubling every two years.
[Show full text]
Understanding Outcome Bias ∗
Understanding Outcome Bias ∗ Andy Brownbacky Michael A. Kuhnz University of Arkansas University of Oregon January 31, 2019 Abstract Disentangling effort and luck is critical when judging performance. In a principal-agent experiment, we demonstrate that principals' judgments of agent effort are biased by luck, despite perfectly observing the agent's effort. This bias can erode the power of incentives to stimulate effort when there is noise in the outcome process. As such, we explore two potential solutions to this \outcome bias" { control over irrelevant information about luck, and outsourcing judgment to independent third parties. We find that both are ineffective. When principals have control over information about luck, they do not avoid the information that biases their judgment. In contrast, when agents have control over the principal's information about luck, agents strategically manipulate principals' outcome bias to minimize their punishments. We also find that independent third parties are just as biased as principals. These findings indicate that outcome bias may be more widespread and pernicious than previously understood. They also suggest that outcome bias cannot be driven solely by disappointment nor by distributional preferences. Instead, we hypothesize that luck directly affects beliefs about agents even though effort is perfectly observed. We elicit the beliefs of third parties and principals and find that lucky agents are believed to exert more effort in general than identical, unlucky agents. JEL Classification: C92, D63, D83 Keywords: Experiment, Reciprocity, Outcome Bias, Attribution Bias, Blame ∗We wish to thank Gary Charness, Ryan Oprea, Peter Kuhn, Joshua Miller, Justin Rao, and James Andreoni for valuable feedback.
[Show full text]
Moral Hindsight
Special Issue: Moral Agency Research Article Moral Hindsight Nadine Fleischhut,1 Björn Meder,2 and Gerd Gigerenzer2,3 1Center for Adaptive Rationality, Max Planck Institute for Human Development, Berlin, Germany 2Center for Adaptive Behavior and Cognition, Max Planck Institute for Human Development, Berlin, Germany 3Center for Adaptive Behavior and Cognition, Harding Center for Risk Literacy, Max Planck Institute for Human Development, Berlin, Germany Abstract: How are judgments in moral dilemmas affected by uncertainty, as opposed to certainty? We tested the predictions of a consequentialist and deontological account using a hindsight paradigm. The key result is a hindsight effect in moral judgment. Participants in foresight, for whom the occurrence of negative side effects was uncertain, judged actions to be morally more permissible than participants in hindsight, who knew that negative side effects occurred. Conversely, when hindsight participants knew that no negative side effects occurred, they judged actions to be more permissible than participants in foresight. The second finding was a classical hindsight effect in probability estimates and a systematic relation between moral judgments and probability estimates. Importantly, while the hindsight effect in probability estimates was always present, a corresponding hindsight effect in moral judgments was only observed among “consequentialist” participants who indicated a cost-benefit trade-off as most important for their moral evaluation. Keywords: moral judgment, hindsight effect, moral dilemma, uncertainty, consequentialism, deontological theories Despite ongoing efforts, hunger crises still regularly occur all deliberately in these dilemmas, where all consequences are over the world. From 2014 to 2016,about795 million people presented as certain (Gigerenzer, 2010). Moreover, using worldwide were undernourished, almost all of them in dilemmas with certainty can result in a mismatch with developing countries (FAO, IFAD, & WFP, 2015).
[Show full text]
Infographic I.10
The Digital Health Revolution: Leaving No One Behind The global AI in healthcare market is growing fast, with an expected increase from $4.9 billion in 2020 to $45.2 billion by 2026. There are new solutions introduced every day that address all areas: from clinical care and diagnosis, to remote patient monitoring to EHR support, and beyond. But, AI is still relatively new to the industry, and it can be difﬁcult to determine which solutions can actually make a difference in care delivery and business operations. 59 Jan 2021 % of Americans believe returning Jan-June 2019 to pre-coronavirus life poses a risk to health and well being. 11 41 % % ...expect it will take at least 6 The pandemic has greatly increased the 65 months before things get number of US adults reporting depression % back to normal (updated April and/or anxiety.5 2021).4 Up to of consumers now interested in telehealth going forward. $250B 76 57% of providers view telehealth more of current US healthcare spend % favorably than they did before COVID-19.7 could potentially be virtualized.6 The dramatic increase in of Medicare primary care visits the conducted through 90% $3.5T telehealth has shown longevity, with rates in annual U.S. health expenditures are for people with chronic and mental health conditions. since April 2020 0.1 43.5 leveling off % % Most of these can be prevented by simple around 30%.8 lifestyle changes and regular health screenings9 Feb. 2020 Apr. 2020 OCCAM’S RAZOR • CONJUNCTION FALLACY • DELMORE EFFECT • LAW OF TRIVIALITY • COGNITIVE FLUENCY • BELIEF BIAS • INFORMATION BIAS Digital health ecosystems are transforming• AMBIGUITY BIAS • STATUS medicineQUO BIAS • SOCIAL COMPARISONfrom BIASa rea• DECOYctive EFFECT • REACTANCEdiscipline, • REVERSE PSYCHOLOGY • SYSTEM JUSTIFICATION • BACKFIRE EFFECT • ENDOWMENT EFFECT • PROCESSING DIFFICULTY EFFECT • PSEUDOCERTAINTY EFFECT • DISPOSITION becoming precise, preventive,EFFECT • ZERO-RISK personalized, BIAS • UNIT BIAS • IKEA EFFECT and • LOSS AVERSION participatory.
[Show full text]
Hindsight Bias and Outcome Bias in Judging Directors' Liability and The
Received: 7 June 2020 | Revised: 12 September 2020 | Accepted: 18 October 2020 DOI: 10.1111/jasp.12722 ORIGINAL ARTICLE Hindsight bias and outcome bias in judging directors’ liability and the role of free will beliefs Niek Strohmaier1 | Helen Pluut1 | Kees van den Bos2 | Jan Adriaanse1 | Reinout Vriesendorp3 1Department of Business Studies, Leiden University, Leiden, the Netherlands Abstract 2Department of Psychology and School Following a corporate disaster such as bankruptcy, people in general and dam- of Law, Utrecht University, Utrecht, the aged parties, in particular, want to know what happened and whether the com- Netherlands 3Department of Company Law and pany's directors are to blame. The accurate assessment of directors’ liability can Department of Business Studies, Leiden be jeopardized by having to judge in hindsight with full knowledge of the adverse University, Leiden, the Netherlands outcome. The present study investigates whether professional legal investiga- Correspondence tors such as judges and lawyers are affected by hindsight bias and outcome Niek Strohmaier, Department of Business Studies, Leiden University, Steenschuur 25, bias when evaluating directors’ conduct in a bankruptcy case. Additionally, to 2311 ES Leiden, the Netherlands. advance our understanding of the mechanisms underlying these biases, we also Email: [email protected] examine whether free will beliefs can predict susceptibility to hindsight bias and outcome bias in this context. In two studies (total N = 1,729), we demonstrate that legal professionals tend to judge a director's actions more negatively and perceive bankruptcy as more foreseeable in hindsight than in foresight and that these effects are significantly stronger for those who endorse the notion that humans have free will.
[Show full text]
The Comprehensive Assessment of Rational Thinking
EDUCATIONAL PSYCHOLOGIST, 51(1), 23–34, 2016 Copyright Ó Division 15, American Psychological Association ISSN: 0046-1520 print / 1532-6985 online DOI: 10.1080/00461520.2015.1125787 2013 THORNDIKE AWARD ADDRESS The Comprehensive Assessment of Rational Thinking Keith E. Stanovich Department of Applied Psychology and Human Development University of Toronto, Canada The Nobel Prize in Economics was awarded in 2002 for work on judgment and decision- making tasks that are the operational measures of rational thought in cognitive science. Because assessments of intelligence (and similar tests of cognitive ability) are taken to be the quintessence of good thinking, it might be thought that such measures would serve as proxies for the assessment of rational thought. It is important to understand why such an assumption would be misplaced. It is often not recognized that rationality and intelligence (as traditionally deﬁned) are two different things conceptually and empirically. Distinguishing between rationality and intelligence helps explain how people can be, at the same time, intelligent and irrational. Thus, individual differences in the cognitive skills that underlie rational thinking must be studied in their own right because intelligence tests do not explicitly assess rational thinking. In this article, I describe how my research group has worked to develop the ﬁrst prototype of a comprehensive test of rational thought (the Comprehensive Assessment of Rational Thinking). It was truly a remarkable honor to receive the E. L. Thorn- Cunningham, of the University of California, Berkeley. To dike Career Achievement Award for 2012. The list of previ- commemorate this award, Anne bought me a 1923 ous winners is truly awe inspiring and humbling.
[Show full text]
50 Cognitive and Affective Biases in Medicine (Alphabetically)
50 Cognitive and Affective Biases in Medicine (alphabetically) Pat Croskerry MD, PhD, FRCP(Edin), Critical Thinking Program, Dalhousie University Aggregate bias: when physicians believe that aggregated data, such as those used to develop clinical practice guidelines, do not apply to individual patients (especially their own), they are exhibiting the aggregate fallacy. The belief that their patients are atypical or somehow exceptional, may lead to errors of commission, e.g. ordering x-rays or other tests when guidelines indicate none are required. Ambiguity effect: there is often an irreducible uncertainty in medicine and ambiguity is associated with uncertainty. The ambiguity effect is due to decision makers avoiding options when the probability is unknown. In considering options on a differential diagnosis, for example, this would be illustrated by a tendency to select options for which the probability of a particular outcome is known over an option for which the probability is unknown. The probability may be unknown because of lack of knowledge or because the means to obtain the probability (a specific test, or imaging) is unavailable. The cognitive miser function (choosing an option that requires less cognitive effort) may also be at play here. Anchoring: the tendency to perceptually lock on to salient features in the patient’s initial presentation too early in the diagnostic process, and failure to adjust this initial impression in the light of later information. This bias may be severely compounded by the confirmation bias. Ascertainment bias: when a physician’s thinking is shaped by prior expectation; stereotyping and gender bias are both good examples. Attentional bias: the tendency to believe there is a relationship between two variables when instances are found of both being present.
[Show full text]
1 Embrace Your Cognitive Bias
1 Embrace Your Cognitive Bias http://blog.beaufortes.com/2007/06/embrace-your-co.html Cognitive Biases are distortions in the way humans see things in comparison to the purely logical way that mathematics, economics, and yes even project management would have us look at things. The problem is not that we have them… most of them are wired deep into our brains following millions of years of evolution. The problem is that we don’t know about them, and consequently don’t take them into account when we have to make important decisions. (This area is so important that Daniel Kahneman won a Nobel Prize in 2002 for work tying non-rational decision making, and cognitive bias, to mainstream economics) People don’t behave rationally, they have emotions, they can be inspired, they have cognitive bias! Tying that into how we run projects (project leadership as a compliment to project management) can produce results you wouldn’t believe. You have to know about them to guard against them, or use them (but that’s another article)... So let’s get more specific. After the jump, let me show you a great list of cognitive biases. I’ll bet that there are at least a few that you haven’t heard of before! Decision making and behavioral biases Bandwagon effect — the tendency to do (or believe) things because many other people do (or believe) the same. Related to groupthink, herd behaviour, and manias. Bias blind spot — the tendency not to compensate for one’s own cognitive biases. Choice-supportive bias — the tendency to remember one’s choices as better than they actually were.
[Show full text]
Heuristics and Cognitive Biases in Decision Making Process
Heuristics and Cognitive Biases in Decision Making Process Anna Marta Winniczuk Kozminski University [email protected] EXTENDED ABSTRACT The goal of this paper is to recognize the most commonly present heuristics and cognitive biases occurring during managerial decision making process. The study will use simulation game as a space to track how game participants are perceiving their biases and heuristics during the game. The purpose of the study is to identify the most commonly used cognitive biases and heuristics in decision making process and compare them to performance of the team and their decisions in the simulation game, which will give valuable insights that can improve game-based business learning. Decision making is one of the crucial processes occurring every day in every organization. The process of making decisions in business situations is influenced by a variety of different circumstances, thus the subject is widely discussed in both academic and professional publications. The subject of heuristics and cognitive biases was widely introduced into decision making science by David Kahneman and Tversky (Tversky & Kahneman, 1973) and furtherly researched by other authors(Baron & Hershey, 1988); Griffin, D., Gonzalez, R., & Varey, C., 2001). In 2011, David Kahneman, Dan Lovallo and Oliver Sibony in their article “The Big Idea: Before You Make That Big Decision…” published in Harvard Business Review listed a checklist for managers to avoid cognitive biases in their decision making process. The most common cognitive biases in managerial decisions are: confirmation bias, availability bias, anchoring, halo effect , overconfidence, disaster neglect and loss aversion (Kahneman & Sibony, 2011). Mentioned above biases are widely common in managerial decision making process and worth examining in an experimental learning environment of a simulation game.
[Show full text]
Influence of Cognitive Biases in Distorting Decision Making and Leading to Critical Unfavorable Incidents
Safety 2015, 1, 44-58; doi:10.3390/safety1010044 OPEN ACCESS safety ISSN 2313-576X www.mdpi.com/journal/safety Article Influence of Cognitive Biases in Distorting Decision Making and Leading to Critical Unfavorable Incidents Atsuo Murata 1,*, Tomoko Nakamura 1 and Waldemar Karwowski 2 1 Department of Intelligent Mechanical Systems, Graduate School of Natural Science and Technology, Okayama University, Okayama, 700-8530, Japan; E-Mail: [email protected] 2 Department of Industrial Engineering & Management Systems, University of Central Florida, Orlando, 32816-2993, USA; E-Mail: [email protected] * Author to whom correspondence should be addressed; E-Mail: [email protected]; Tel.: +81-86-251-8055; Fax: +81-86-251-8055. Academic Editor: Raphael Grzebieta Received: 4 August 2015 / Accepted: 3 November 2015 / Published: 11 November 2015 Abstract: On the basis of the analyses of past cases, we demonstrate how cognitive biases are ubiquitous in the process of incidents, crashes, collisions or disasters, as well as how they distort decision making and lead to undesirable outcomes. Five case studies were considered: a fire outbreak during cooking using an induction heating (IH) cooker, the KLM Flight 4805 crash, the Challenger space shuttle disaster, the collision between the Japanese Aegis-equipped destroyer “Atago” and a fishing boat and the Three Mile Island nuclear power plant meltdown. We demonstrate that heuristic-based biases, such as confirmation bias, groupthink and social loafing, overconfidence-based biases, such as the illusion of plan and control, and optimistic bias; framing biases majorly contributed to distorted decision making and eventually became the main cause of the incident, crash, collision or disaster.
[Show full text]
“Dysrationalia” Among University Students: the Role of Cognitive
“Dysrationalia” among university students: The role of cognitive abilities, different aspects of rational thought and self-control in explaining epistemically suspect beliefs Erceg, Nikola; Galić, Zvonimir; Bubić, Andreja Source / Izvornik: Europe’s Journal of Psychology, 2019, 15, 159 - 175 Journal article, Published version Rad u časopisu, Objavljena verzija rada (izdavačev PDF) https://doi.org/10.5964/ejop.v15i1.1696 Permanent link / Trajna poveznica: https://urn.nsk.hr/urn:nbn:hr:131:942674 Rights / Prava: Attribution 4.0 International Download date / Datum preuzimanja: 2021-09-30 Repository / Repozitorij: ODRAZ - open repository of the University of Zagreb Faculty of Humanities and Social Sciences Europe's Journal of Psychology ejop.psychopen.eu | 1841-0413 Research Reports “Dysrationalia” Among University Students: The Role of Cognitive Abilities, Different Aspects of Rational Thought and Self-Control in Explaining Epistemically Suspect Beliefs Nikola Erceg* a, Zvonimir Galić a, Andreja Bubić b [a] Department of Psychology, Faculty of Humanities and Social Sciences, University of Zagreb, Zagreb, Croatia. [b] Department of Psychology, Faculty of Humanities and Social Sciences, University of Split, Split, Croatia. Abstract The aim of the study was to investigate the role that cognitive abilities, rational thinking abilities, cognitive styles and self-control play in explaining the endorsement of epistemically suspect beliefs among university students. A total of 159 students participated in the study. We found that different aspects of rational thought (i.e. rational thinking abilities and cognitive styles) and self-control, but not intelligence, significantly predicted the endorsement of epistemically suspect beliefs. Based on these findings, it may be suggested that intelligence and rational thinking, although related, represent two fundamentally different constructs.
[Show full text]