03 Authority bias
Airline pilots wear smart uniforms for a
reason. Not because they belong to a military order. They don’t. But because
they want to imply authority. This is great for controlling passengers. They
obey. The problem is, so do co-pilots. The writer Malcolm Gladwell in his book
Outliers suggest the Korean Air flight 801 crashed because the co-pilot was
too reticent to challenge the pilot about his decisions. Post-crash, British
investigators demanded the airline “promote a freer atmosphere between the
captain and the first officer” to permit questioning. The air of authority can
dupe the best of us. A flash of military insignia, or sharp suit, can
short-circuit our normal capacity for analysis.
04 Conservatism bias
It’s a misconception that the right approach
to risk is solely to minimize it. Risk is a vital and necessary part of life.
Conservatism bias is what happens when this is not well-understood Conservatism
bias is why Blockbuster video turned down the acquisition of Netflix for $50
million. The management found it easier to do nothing than embrace risk.
05 Triviality law
It’s exhausting to think about complex issues.
Given half a chance, the human mind will make a break for a simpler, trivial
issue to distract itself. Politics is dominated by this effect. Major issues,
such as a politician’s view on the national debt, are rarely discussed or
reported. Too hard. Instead, the focus is on trivial issues, such as whether
they can eat a bacon sandwich with dignity. This is a serious issue in risk. It
takes effort to get people to think about critical issues. Given the chance
they’ll veer off and focus on something fluffy and trivial, to spare their grey
cells.
06 Risk compensation
The British Medical Journal recently came out
against bicycle helmets. It’s not that helmets don’t work. Fall off and you’ll
be grateful your fragile skull is encased in protective plastic. Rather, the
phenomenon of risk compensation negates the benefit. Data from multiple nations
shows that when cyclists feel safer, they compensate, by taking extra risks,
cutting in front of cars and not looking at junctions. Individuals with
documented helmet use had 2.2 times the odds of non–helmet users of being
involved in an injury-related accident. Furthermore, mandatory helmet wearing
reduced cycling, adding to negative effects.
07 Social proof
There is a beguiling power of effects such as
social proof. Do you remember some years ago when one oil company bought a
fertilizer company, and every other major oil company practically ran out and
bought a fertilizer company? And there was no more damned reason for all these
oil companies to buy fertilizer companies, but they didn’t know exactly what to
do and if Exxon was doing it, it was good enough for Mobil, and vice versa. If
someone in authority is doing or saying it you have a social proof and will
consider whatever it is acceptable.
08 Charm pricing
Human reaction to numbers is riddled with
quirks. Discount stores use charm pricing, knocking a penny off to end in “99”.
When I worked in retail many years ago, we knew the value of having a price ending
in 99. In an informal survey 50% of consumers when asked saw prices ending in
99 cents as more value for money, while the remainder saw prices as higher.
Charm prices were 9 percent more likely to be seen as good value than the
rounded prices. A disproportionately large improvement for a 1 percent price
drop.
09 Overconfidence bias
There is an idea that dim people overestimate
their skills, while bright people doubt their abilities. But could it be that
even experts are overconfident? Alas yes, especially when forecasting.
Economist Philip Tetlock spent 20 years studying forecasts by experts about the
economy, stock markets, wars and other issues. He found the average expert did
as well as random guessing or as he put it “as a dart-throwing chimpanzee
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