The topical case study of Elizabeth Holmes and Theranos provides an excellent backdrop for asking some pointed questions about leadership and culture!

One of the great failings of Theranos was the culture of secrecy and suppression of bad news from people who could clearly see the problems with the business.

But we can learn some great things about leadership from 'worst case' scenarios like this.

Click below to see the 5 observations we can take from the Theranos case about leadership and culture (consider these some key 'watch outs' for your organization's culture).

Avoiding Common Biases

EPISODE #192 TRANSCRIPT

I had a lively conversation with one of my close colleagues a week or two ago about cognitive biases. After I made the sweeping statement that almost all of us were affected by biases in one way or another, she was adamant that she's absolutely not driven by any biases - which ironically is a sure sign of what we call blindspot bias. 

After that conversation, I thought it was about time I took a bit of a dive into this topic. I talk about decision-making frequently, and many of our decisions can be tainted by the inbuilt unconscious biases that we don't even know are guiding our behaviors. It's quite common to hear about the biases that underpin discrimination on the basis of gender, race and sexual orientation. But our inbuilt biases operate way more broadly this, and they can have an oversized influence on the outcomes we experience if we don't develop a keen awareness of them. 

Today I'm going to look at some of the more common biases - the ones that we pretty much all suffer from on the odd occasion. And I'll tell a few stories about how I've learned to deal with them over time. In researching this episode, I went to the most reliable website in the world - Wikipedia. Now, the Wiki page on cognitive biases listed over 150 different types of bias - of course, I won't be dealing with all of these today. I'm basically going to go through three general areas of bias that we're all likely to suffer from in our decision-making processes, with six examples of each one: 

• Biases that limit our self awareness

• Biases that affect our judgment 

• Biases that straight out deceive us 

So let's get into it.

BIASES THAT PLAY ON SELF-AWARENESS

Self-serving Bias 

We think that our failures are situational, but our successes are down to our own efforts and good judgment . This is one of the most common biases that you'll see in senior leaders. When something is successful, they talk about all the things they did to make it successful as if their good management was the only factor. But when something goes wrong, they're quick to point to the external factors that they couldn't possibly have anticipated saying, either directly or indirectly, that the failure shouldn't be attributed to them personally. 

This is a classic part of organizational politics - and I know you've all seen it. An even darker sight is that this inhibits learning, and eventually you've got a whole lot of senior people running around who just believe their own bullshit.

The Spotlight effect

We overestimate how much people are paying attention to our behavior and appearance. This is a really interesting one because most people give much less thought to us and what we do than we might imagine. I guess because so much of our own time is tied up in being self-absorbed, this disproportionate weighting of our own importance to others can be exaggerated.

But, it changes how we behave in the moment because we are too worried about what other people think, and we don't realize that they're so self-absorbed in their own shit that they generally don't give us a second thought. I used to use a line in my head to get over this - I can't remember where I first heard it, but it's an absolute cracker: “What other people think of me is none of my business.” 

The False Consensus effect 

We believe more people agree with us than is actually the case. We have a natural tendency to think that others agree with us, but this is amplified by the fact that when people do disagree, they usually don't tell. It's made a lot worse in a leadership context by our seniority. As we get higher up, we find that ‘yes men’ and ‘yes women’ are in plentiful supply, and they make an absolute art form of telling us what we want to hear. As a good colleague of mine told me before I took my first CEO role, “Marty, all your jokes are going to become just a little bit funnier.” 

My antidote: look for signs of dissent. This could be just lukewarm comments, or body language and facial expressions that are almost imperceptible, and you always have the option of asking your trusted advisor. But do something to test the water. 

Objectivity Illusion 

We believe that we observe objective reality and that others are irrational or uninformed - this is where empathy is really important. We need to be able to tap into the curiosity that comes from asking ourselves one simple question when someone puts forward a viewpoint that doesn't align with our own: “I wonder why they believe that?” If we give other people the benefit of the doubt for their intelligence and experience, it might just be the case that they know something that we don't. 

The Dunning Kruger effect 

This is basically the fact that the less you know, the more confident you are - and conversely, the more you know, the less confident you are. It's so common. Research has shown that people tend to vastly overestimate their own ability in all sorts of areas, and the Dunning Kruger study was entitled, Unskilled and unaware of it. Still my favorite research paper name ever. I used to often use the expression, “He doesn't know what he doesn't know.” This is why it's important to have a continuous learning philosophy. As I like to say: the older I get, the less certain I am about practically everything. 

The IKEA effect

We place higher value on things that we have partially created ourselves - I also like to call this ‘White Line Fever’. The more time and effort you put into something, the more committed you are to seeing it come true. 

This is such a common fallacy in things like mergers and acquisitions. Because we put so much energy into thinking about and planning an acquisition, key pieces of data are often ignored on the way through because they don't support the continued march towards deal completion. This gets some way to explaining why so few M&A deals are value accretive, and they more often than not destroy company value. Sometimes the very best deal is the one you don't do.

BIASES THAT AFFECT OUR JUDGMENT

The Halo effect 

If you see a person as having one positive trait, that tends to spill over into other traits. Boy, how do we see this? My biggest bugbear: a good individual contributor isn't necessarily a good leader, but really competent technical people get promoted. And then the halo of competence and intelligence hangs around them, even when their leadership is abysmal. This is maybe one reason why there are so many smart, experienced and capable Executives, but so few great leaders. 

Discussions at talent management sessions I've had over the years confirm this. Many Executives talk about their people in glowing terms based on only one facet of their behavioral performance, expecting that everyone will suck up the fact that this flows over into their broader capability. This is why a really strong talent management process looks at a number of things:

• It starts with a multifaceted assessment of people's performance; 

• It includes their behavior and conduct; and 

• It examines the relationship between performance and potential.

The Bandwagon effect 

Ideas and beliefs grow as more people adopt them. We see so much of this in corporate life. Most leaders wait until the senior person in the room, or the opinion leader, talks - and only then will they nail their colors to that mast. I always preferred to be a little contrary. It wasn't always well received, but my leadership brand has always been to speak my mind and to say the things that many may be thinking, but very few will actually voice. I must admit though, I did get run over by the bandwagon on a few occasions. 

Confirmation Bias 

We tend to find and remember information that confirms our existing perceptions. This is one of the really, really big ones. It's always been hard to escape confirmation bias because, let's face it, we all like to have our existing views reinforced. But in the last 10 years in particular, this has become almost impossible to avoid. Why? Because our news and social media algorithms are actually designed to learn what we like, to find out what we already believe, and then just serve us more of that. Try it out sometime if you haven’t observed this already: start watching a couple of videos on TikTok, Instagram, or Facebook, and then notice how many of these become directed to you. 

My remedy for this is to push myself to intentionally listen to stuff that's outside my belief system - just be sure that I'm exposing myself to different views of thinking. When I pick a podcast for my morning exercise, I don't always choose one I'm going to enjoy. I choose one that I think I may need. This allows me to challenge my own political views, enhance my appreciation of world events, and it helps me to learn more about subjects that I might dangerously think that I'm already expert in - like leadership.

Optimism Bias 

We're sometimes overly optimistic about good outcomes, and let’s face it, it's really important to maintain an optimistic disposition. I talk about optimistic pragmatism, and it makes a big difference in business and in life. But you need to be aware of the downside, and if you're not careful, it can really skew decisions. 

I don't know how many major investment proposals I've examined over my corporate career - I guess it would be hundreds of proposals in the $1 million-plus range, and probably 50 proposals in the $100 million-plus range. One thing is common in virtually all of them, including the ones I wrote or sponsored myself: they overstate the benefits and they understate the downside risks. 

This is where it's really useful to have tools like De Bono’s Six Thinking Hats. When you're looking into major investments, you can assign someone to wear the ‘black hat’, metaphorically speaking. In other words, you give them the task of finding all the problems, issues, and potential downsides. This is going to be extremely valuable in overcoming this bias and getting greater balance into the discussion. 

The Illusory Truth effect

I have to admit, this one caught me a little bit off guard: we are more likely to believe that something's true if it's repeated a lot or if it's easy to process. This one wasn't a big focus for me, but as soon as I read it, I thought, “Well, of course!” How often do we hear people make unsupported statements of opinion and present them as if they were facts? 

My favorite question when faced with a statement that appears to be getting a life of its own is this: “What's your evidence for that?” It can be really powerful in breaking conventional wisdom, and combating the illusory truth effect.

Frequency Illusion (a.k.a. the Baader-Meinhof effect) 

We rely on immediate examples that come to mind when we are making judgments. Have you ever noticed when you buy a new car that suddenly they're everywhere? If you've just purchased a red Volkswagen, it's almost like they've just suddenly appeared out of nowhere and it's magically become the most popular car in your town. Of course, there are no more of these now than there were the day before you bought the car, but you just notice them now. 

Because of this immediacy effect, it's important to have people around you that completely different experiences, and it's also good to ask questions like these: 

• What other factors are at play here? 

• Is this a point in time observation or is there an observable trend? 

• How has this changed recently? 

You have to be constantly testing the frequency illusion.

BIASES THAT DECEIVE US

Anchoring 

We rely heavily on the first information introduced when we make decisions. This is critical in terms of negotiation. I've been asked the question a number of times, “Marty, in a negotiation, should I make the first offer?” Well, I'm not going to go into that here because, of course, it depends. 

However, you need to know that the first bid gives you an anchor point and that's how you psychologically evaluate the rest of the proceedings. To give you a really simple example of how this works: I'm sure that many of you have, at one point or another, haggled to purchase something in a market. Now in many Asian countries, haggling with a vendor to get the best price is common and they are experts at anchoring. So when you ask the question, “How much?”, you give them the opportunity to set your expectations. 

When you're in the Hutong Market in Beijing, and they say an item will cost you 100 Yuan (which is about $15 USD), that’s automatically where your mind goes from that point. So you counter, and they counter again. Let's say, you end up at 60 Yuan. Now, you think you've just got a great deal because you knocked their first price down by 40%, and you congratulate yourself for being a kick ass negotiator. 

You don't actually see the reality - which may be that the item actually cost about 15 Yuan to make and they would've been ecstatic to sell it to you for 20. You've actually just paid three times what you needed to to buy the item. But hey, it's chump change, and it's entertaining. Just be aware of the dynamic of anchoring bias. 

Sunk Cost Fallacy (a.k.a. Escalation of Commitment) 

We invest a lot more in things that have cost us something already, rather than altering our investments - even if we face negative outcomes in the future. This bias is a little more insidious. If we were totally dispassionate in our decision making, we would always look at future outcomes as realistically as we possibly could in order to decide what to do. But human nature compels us to look backwards. On several occasions, I've been forced to cancel projects because they presented an unattractive commercial outcome going forward. 

One of the biggest of these had already sunk almost $70 million, which needed to be written off when the project was scuttled. I have to tell you, it takes a pretty strong constitution to recommend that a board writes off $70 million, even if you know it's the best course of action. But here's the important thing: the $70 million was already gone. There was no way you were getting it back, and absolutely no sense in putting good money after bad, that will just compound the felony. 

So, always look forward and assess the future risk and reward. The fact that you may have sunk a bunch of money is regrettable, but completely unavoidable. 

Gambler's Fallacy

We think that future possibilities are affected by past events - this is a classic bias. Try this little exercise: go and grab a six-sided dice and start rolling it. You may observe some patterns, for example, if you don't throw a six in 25 throws, you'll feel as though it has to come soon. 

So what's the probability that you'll throw a six on your next throw? Well, it's one in six, exactly the same as it was on your first throw. Each throw is an independent event and it isn’t influenced in any way by past events. This is a critical truth to understand in both business and life.

Planning Fallacy 

Everything takes longer than we expect. When I was a young project manager in the software business, I had a real problem with one of the undeniable facts of projects: most of them fail. Despite all the years of undertaking software development and integration projects, how is it remotely possible that such a high percentage fail to deliver what they promise? I did an episode on this a while back Episode 89: Are All Projects Doomed? It’s definitely worth listening to if you have an interest in projects. 

Planning is always a problem. Everything takes longer than we think - and we never seem to learn this! As a project sponsor, or steering committee member, you have to really look out for one key statement from project personnel: “We're behind right now, but we are going to catch it up in the next phase.” Guess what? It never happens. It's impossible without changing something. 

There are only four levers that you have to make a material difference to project progress. There's cost, scope, quality and time, and they're all interrelated. So, you need to always be aware of the planning fallacy, and to discount any statements made by people in the planning phase accordingly.

The Framing effect

We draw completely different conclusions from the same information, depending on how it's presented. Let me give you a quick example: 

If you heard on the news “Road deaths are down dramatically this year, as 500 people have died on Boston's roads,” it is completely different to hearing “Road deaths are out of control, and the Massachusetts government has promised to spend an additional $4 billion on road safety initiatives, as 500 people have died on Boston's roads.” Your perception of those 500 road deaths depends entirely on the framing.

Be aware of this because framing can be used just as easily for evil as it can for good. As a way to give important context, it’s invaluable. But when it's used as a tool to convince you of something by cherry picking the information that's presented, it can be extraordinarily misleading. 

Illusory Correlation 

This is simply believing patterns that aren't there. My favorite of course, “Happy workers are productive workers.” That's simply not true, and it causes us as leaders to do dumb shit that we really shouldn't. We tolerate substandard behavior and performance because we want to keep people happy. 

This is supposed to be confirmed by academic research, but research can be highly prone to bias as well. For example, there was a study conducted in Denmark about 10 years ago, which found that three pints of beer a day is actually good for you. According to this study, beer can help to prevent cardiovascular disease, diabetes, and high blood pressure, and apparently it can also lower the risk of osteoporosis, especially in postmenopausal women. 

Three beers a day, with a maximum of 21 per week in conjunction with a healthy diet, of course, is the recommended dosage for men. This plays right into my confirmation bias! 

You can see how these biases can have a huge impact on your beliefs, opinions, and actions. The only way to combat this is to assume that in every case, there is some inherent unconscious bias pulling you in a certain direction. So get into the habit of asking yourself good questions and get out of the habit of operating on autopilot. It's often really easy to see other people's biases, but so hard to see our own - so stop giving yourself the benefit of the doubt, and learn how to be strong enough to challenge yourself as much as you challenge others.

RESOURCES AND RELATED TOPICS:

• Episode #89: Are All Projects Doomed? - Listen Here

• Avoiding Burnout by Streamlining Your Leadership Approach Replay - Here

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