3 Mechanisms That Bias Our Decision-Making: Anchoring Bias

An anchor prevents a boat from straying from a set point.

When making decisions, managers are starting from their anchor – their initial set point, which is grounded in culturally-influenced values and norms.

A manager will drift from this point until the chain pulls taut.

There, he will reach a final decision, but inevitably, because he is anchored to a set point, that decision is influenced by anchoring bias.

We’ve talked about availability bias and representative bias in the last two blog posts and how each influences decision-making.

This week, let’s take a deep look at anchoring.

Anchoring in North African Souk

Let’s say you’re from a Western culture and travel to Northern Africa as a tourist. There, you head into a souk, and a seller zeroes in on you.

Knowing that your cultural norms and values are anchored in paying top prices for quality goods, the seller asks for a much higher price for a carpet than he might ask of locals.

Assuming your ignorance of the local pricing market, he starts astronomically high when haggling. That way, he can negotiate down to the highest amount you’re willing to pay.

He knows your anchoring bias allows for it.

If you never discover how much locals are paying for the same carpet, you’ll be none the wiser. You might even walk away thinking you scored a real bargain, when in reality, you paid ten times the local rate.

But if you later discover the seller gouged you on the price, you’ll likely feel scammed, which can often strain future negotiations.

This is one way in which markets use anchoring bias to their advantage in cross-cultural business.

Anchoring in Vancouver Housing Market

Sometimes, exploiting anchoring biases can backfire for local communities.

Let’s travel from North Africa to Vancouver.

The ‘90s saw a peak in Hong Kongers and mainland Chinese immigrants migrating to Canada. A large number settled in the Vancouver area.

Hong Kong real estate is notoriously pricey, so when Hong Kongers anchored in Vancouver, they were willing to pay top dollar for property.

The local real estate market exploited this anchoring bias and charged higher rents.

The result was that, like Hong Kong, Vancouver real estate now has a reputation of being exceptionally expensive.

According to MoneySense,

“Data collected by David Ley shows how, over the last few decades, metro Vancouver has become similar to other Pacific Rim ‘gateway’ cities, such as Hong Kong, Singapore, London and Sydney. Each of these gateway cities have rising housing costs that are fueled by high immigration-driven population growth and foreign investors.”

So, when exploiting anchoring biases in cross-cultural business goes South for local communities, how do they re-anchor?

In 2018, the British Columbia New Democratic Party was voted in primarily due to their platform on housing costs. Their goal was to increase the housing supply, slow demand, and dissuade overseas buyers by taxing empty homes and raising the foreign-buyer tax from 15 to 20 percent.

In this way, Vancouver is attempting to re-anchor their housing market to align with their own cultural norms and values.

3 Mechanisms That Bias Our Decision-Making: Representativeness Bias

Every single person has a mental model.

When assessing the likelihood of an event, the individual bases the event’s probability upon its similarity to that model.

This is called representativeness bias.

Last week, we talked about availability bias, one of the three mechanisms that bias our decision-making.

Availability bias involves one’s perception of an event’s frequency based upon its vividness and frequency in the forefront of one’s mind.

Now, let’s take a look at how this second mechanism – representativeness bias – distorts judgment and decision-making.

Marriage & Divorce

One example of representativeness bias involves marriage.

Many people’s mental model of marriage is that of a lifelong partnership. Not often does a couple enter into a marriage with a view of divorce.

Due to their mental model of eternal love, only around 5 percent of couples in the U.S. sign a prenup, despite around 50 percent of marriages ending in divorce, according to research by Harvard Law.

Somehow, most don’t consider they’ll be part of the statistic and, so, don’t plan for it.

In this way, the power of representativeness bias is stronger than the logic of probability.

Representativeness Bias in Business Decisions

Culture, of course, influences our mental models, and so representativeness biases are grounded in culture.

Let’s look at another example of how a business decision revealed representativeness bias, likely to the detriment of the business.

The global insurance company, Allianz, had built business in eleven African countries. Although profitable, the business was small and, in March 2014, Allianz reviewed their strategy on the continent.

They narrowed their way forward down to two roads: 1) apply aggressive growth through acquisition, or 2) wholly sell off the business.

The board of Allianz was presented with a growth strategy. They rejected it.

Their view was that Africa’s corruption was too extensive and might put the insurance company at reputational risk.

However, Allianz continued to do business throughout Eastern Europe.

According to the Transparency International list – an index of worldwide national corruption – several countries in Eastern Europe, in which the insurance group remained, rated equally corrupt as their African counterparts.

The West’s mental model of Africa considers the entire continent as one monolith of extreme corruption, thereby biasing judgment in lieu of logical probability.

In dismissing growth based on representativeness bias, the company may have lost out on a successful business venture and the profitability that accompanied it.

Tune in next week for anchoring bias.

3 Mechanisms That Bias Our Decision-Making: Availability Bias

Managers apply simple models to help make decisions. Personal experience and culture help form these models.

Our cultural environment largely influences the rationale of our decision-making processes.

Daily decisions don’t require extensive analysis; rather, progress is made more efficient using prior experience and rule of thumb.

But it’s important to note that when we lean heavily into “rule of thumb” and prior experience, we unconsciously rely on bias.

As identified by research, three mechanisms affect this decision-making bias:

  • Availability
  • Representativeness
  • Anchoring

We’ll outline each across the next few blog posts, starting today with availability.

First, a question…

Which of the following do you think kills more people worldwide each year?

  1. Vehicular accidents
  2. Lung cancer
  3. Cape buffalo

If you answered “a) Vehicular accidents,” you’re a product of availability bias.

Availability bias involves making a judgment based upon the frequency of an event in the forefront of one’s mind rather than the event’s real-life probability.

Emotional or easily imaginable events – like vehicular accidents – are recalled more readily than a vague, obscure, or uninteresting incident.

This makes such events seem more prevalent and probable than they actually are.

And the answer…

An experiment was done in the U.S. with just such a question, where participants were asked whether more worldwide deaths were caused by lung cancer or car accidents annually.

Most answered that car accidents resulted in a higher fatality rate. The reality is that lung cancer kills nearly twice as many each year.

On average, over 2 million die each year from lung cancer, according to the World Health Organization, while the CDC states that around 1.35 million are killed on roadways across the globe annually.

The reason there is such a lopsided perception on each event’s probability is partially related to media culture, in which vehicular deaths are much more widely covered than those caused by lung cancer.

Humans really do have a selective memory: we remember more frequently and distinctly situations with a vivid narrative.

This skews the perception of each event’s frequency.

Other aspects that contribute to an individual’s availability bias include personal experience. If the individual knew of someone or multiple people, for instance, who had died from either lung cancer or a vehicular accident, this information might also bias their judgment.

Now, consider if you asked the same question of a Kenyan participant. In Africa, 200 people die each year from Cape buffalo, and such fatal incidents are likely heavily covered by the media.

Overall, a Kenyan participant might have a higher estimate than their U.S. counterpart regarding the global fatality rate caused by Cape buffalo.

In this way, cultural differences impact our availability bias and, in turn, our perception and judgment when it comes to decision-making.

On deck next week: representativeness.

4 Managerial Styles to Cope with Stressful Decision-Making

You are facing a global pandemic. You must decide the best approach to keeping your business afloat.

How do you protect your bottom line? Do you lay off workers? Can you do mental gymnastics and reassess your business model, making the current economy’s limitations work for you?

The way you cope with the stress of complex business decisions reflects both your personality and your culture.

Four different managerial styles have been identified through research.

We’ll call these styles:

  • The architect
  • The free spirit
  • The expert-seeker
  • The panic attack

You may recognize one – or all – of these strategies in yourself and your management methodology.

Let’s take a look at each.

The Architect

This form, which is most taught in schools of management, considers alternative solutions to complex business decisions through the attentive collection of facts.

This methodology and its application is one in which Western managers pride themselves.

An architect is a planner, accounting for the whole picture and all potential outcomes.

The Free Spirit

Complacency and spontaneity are the main tools in the free-spirit’s managerial toolbox.

No complicated decision-making process is employed; the free-spirit takes the first available practical course of action that presents itself.

In doing so, she may be blind to alternatives with better outcomes.

The Expert-Seeker

Instead of relying on his own managerial expertise, the expert-seeker passes the buck to those more knowledgeable or qualified on the subject.

The expert-seeker might consult a specialist or supervisor in all aspects of an issue in order to direct his decision-making.

The Panic Attack

The last managerial decision-making style is one you should avoid.

This tactic involves succumbing to panic mode and making reckless, ill-advised decisions largely based on hysteria.

Obviously, this decision-making methodology is not recommended.

Personality and Culture Impacts Decision-Making Methodology

Your decision-making process is largely impacted by both your personality and culture.

Although you’ll find all four strategies in every culture, some styles may be more predominant than others.

For instance, you’ll find The Architect methodology is applied more often in Western cultures (e.g. the U.S. and Australia) than in, say, Japan or other East-Asian countries.

That does not mean the chosen strategy is any less rational or effective (unless we’re talking The Panic Attack).

The difference in methodology is based on a different set of cultural norms and values so, rather, a style that is ineffective in one culture may be more effective in another.

As we discussed in past posts, people act rationally within their own culture.

One example:

Intuition and emotion often direct Japanese managerial decision-making.

Due to the collectivist values of the culture, a primary concern will be how the decision might be received by the group and how it might affect the social fabric.

Collectivist societies take stock in the collective view; the welfare of the entire group, rather than simply the individual, is most important.

We’ll talk more next week about other biases in the managerial decision-making process.

When East Meets West: Understanding the Rationale Behind Indian Norms in the Workplace

You’re a Westerner working in a cross-cultural environment in India.

As a Westerner, you prefer communication that’s direct and clear.

You see ambiguity as a stumbling block in business, so you ask direct questions and expect direct answers in return.

Your Indian colleagues, on the other hand, demonstrate some indirect behaviors that you don’t understand.

The rationale behind this style of communication is a mystery to you, and the need for managerial approval in many cases rubs you the wrong way. You see it as unnecessary micromanagement.

This is a situation in which understanding the rationale behind your colleagues’ culture will forge a better business relationship.

Harmony & Many Truths

Mr. Waseem Hussain cleared up this mysterious rationale for me.

As a bicultural professional who has grown up in Switzerland with Indian parents, he knew both sides of the coin and could bridge that cross-cultural barrier between Indian and European mentalities.

In other words, he was the best zookeeper to explain the behavior of other animals in the zoo to me, the monkey.

When I posed a question about why I couldn’t receive a clear answer to a clear issue from Indian colleagues, he replied that, in some ways, it has to do with Hinduism.

As the majority of Indians believe in many gods, the cultural rationale would be that there are many truths.

Another explanation for the rationale has to do with the cultural concept of harmony.

Say, you ask an Indian colleague to meet a 5 o’clock deadline.

Whether or not it’s possible to complete the work by that point, the colleague will tell you, “Yes, no problem.”

In reality, he may have no intention of completing the work by this deadline, but by offering the positive “yes,” he is in harmony with his Western counterpart.

A “no” means disharmony and discomfort on his part.

Universal Truth & Accountability

From the Westerner’s point of view, this behavior appears as blatant dishonesty.

You expect your colleague to abide by his word, as accountability and time sensitivity are important to your culture.

Most Western cultures are largely shaped by Christianity – that is, the belief in one god. As such, the culture’s norms and values revolve around a single universal truth.

This is one obstacle for Westerners in cross-cultural business environments: universal truths do not exist there.

You must have a higher ambiguity tolerance and be willing to accept and even adapt to foreign norms and beliefs.

Your cultural rationale is not everyone’s rationale.

Reasoning and logic are shaped by culture and evolve accordingly with the history and tradition of the people.

Unless a person is counter-culture, he will likely follow the values, norms, and beliefs of his culture’s rationale.

No assumptions should be made about a culture’s behavior being silly or illogical. Refrain from judging something you don’t understand.

As an effective manager, it is your job to find the rationale behind the behavior and accept and adapt accordingly.

In this case, adopting, for a moment, the Indian culture’s worldview – its belief in many truths and emphasis on harmony – will enable you to see the reasoning behind your colleagues’ behaviors. 

“The World is Flat”: How Beliefs Direct Rationale

Say, you grew up in an remote civilization far away from modern industry and technology. Far away from people and foreign thought.

Say, you were born in the middle of the African savannah. The land is flat. Very little in the way of mountains or hills.

You wake up in the morning to the sun rising in the east and setting in the west. It appears on one side of your village and disappears on the other.

Due to your observations, you assume the world is flat and a void exists at lands’ end. Not an illogical or irrational assumption, all things considered. There is no outside influence to suggest otherwise.

Your hypothesis is not unfounded, and it turns into a belief.

The Gods Must Be Crazy

This plays into the plot of the 1980 South African comedy, The Gods Must Be Crazy. 

In the film, a pilot flying over the plains of South Africa tosses an empty Coke bottle out the window.

When a bushman happens upon the shiny object, he believes the gods sent it to him. After all, it did fall right out of the sky.

Oblivious to modern civilization, the bushman’s tribe experiments with the Coke bottle, using it for a variety of daily tasks – in lieu of a grinding stone, for instance.

The traditional community sees the shiny discarded Coke bottle as a prized trophy, being that there’s only one on Earth (or so they think).

Due to the strife caused by the villagers fighting over this bottle, the tribal elders believe it best to return this gift to the gods in order to maintain peace.

A bushman is tasked with walking to the end of the Earth to toss the Coke bottle into the void.

Those of us who live in the modern world – who know that the world is round and Coke bottles are everywhere – likely find this whole idea laughable.

If someone from a Western culture carried a Coke bottle across an entire continent on foot in order to dispose of it over the edge, we’d consider him crazy, irrational, unreasonable.

But to say the same about these bushmen, we’d be wrong.

Walk in the Steps of the Bushmen

Take yourself out of your own cultural baobab for a moment and place yourself in that of these bushmen.

Were they unreasonable in their thinking or did their actions align with their beliefs?

Their actions were rational and justified within their ideology.

Bottles like this don’t exist in their world. A flat world must have edges, so thinking you can discard a bottle off the edge makes perfect sense.

The point is: a person acts logically within his cultural rationale if his actions/behavior is in accordance with his beliefs.

We’ll follow this logic next week.

Seeking the “Why”: How Curiosity Can Assist Cross-Cultural Integration

When working across cultures, stress develops from inconsistencies in values, behaviors, and norms.

Anxiety accompanies culture shock and the changes in behavior required.

Do you handle stress and anxiety well? Then the transition of adapting to your new culture will happen faster and smoother than otherwise.

If you don’t, the next couple posts will show you how to ease the process.

Why Asking “Why?” is Important

A lack of understanding leads to a lack of acceptance.

Without understanding and acceptance, adapting to things you find random or illogical is next to impossible.

That’s why learning the “why” of behavior clears the way for adaption.

Consider you’re the monkey in the zoo. People are chucking peanuts at you, and you have no idea why.

Your handler feeds you often enough, and you’re not hungry. And yet, these humans are surrounding your home and lobbing peanuts at your feet.

“Seems irrational,” you think. “I have all the food I need. Why are these humans throwing more?”

Then again, you might try to see it from the human perspective by asking, “Why?”

Taking a seat to observe the humans, you – the monkey – try to work out the reasoning behind their behavior.

“Hmmm…” you think, “maybe they aren’t throwing peanuts to feed me; maybe they’re throwing them to observe me. I must be boring them by sleeping. They’re trying to encourage me to engage with them.”

As the monkey, through curiosity, you start to understand the rationale of the human; you understand that not all that is unfamiliar is irrational.

Survival Requires Rational Action

Humans are conditioned to act rationally within their environment and time period in order to survive.

Physicist D. Hillis writes in Cause and Effect:

“We like to organize events into chains of cause and effects that explain the consequences of our actions. […] This makes sense from an evolutionary standpoint. The ultimate job of our nervous system is to make actionable decisions, and predicting the consequences of those decisions is important to our survival.”

Since the dawn of time, human beings have been rationalizing.

Society, etiquette, war.

All of these things developed out of some form of rationale or logic.

They were learned.

The question we’ll be asking is how does cultural rationale develop?

And answering that question – and those that follow – starts with curiosity and observation. We’ll talk about that more next week.

Adapting: The Second Step in Cross-Cultural Management

Over the last few weeks, we’ve laid out the first step of cross-cultural management: acceptance.

Accepting another’s culture, values, and norms as different than your own, while foregoing judgment, accepting ambiguity, tolerating actively, and explaining yourself is the best way to get your toes wet in a new culture.

But we have yet to talk about wading into the shallows of the culture in the form of adapting.

If you dig in your heels at acceptance, then your degree of cross-cultural integration is limited. 

Doing so will certainly help you blend into your host culture, particularly as a manager;  however, at some point, you will find that you must adapt to some aspects of the new culture, or you’ll be forever an outsider.

As the German manager did in his Swiss company, taking your integration a step further by altering your behavior will make the culture accept you.

This is called adapting.

Adapting

First of all, how is adapting different than adopting?

Adapting involves changing your behavior but not your values.

For instance, you are being hosted by a country that bows in greeting as opposed to shaking hands.

As a courtesy, you adapt to this behavior. You bow.

But no doubt, your values haven’t changed; shaking hands is still your preferred greeting based upon your values.

Working across cultures, you might choose to accept and adapt those behaviors whose values are valid and do not impose on your own.

After all, a change in values involves a significant life-altering transformation. More often than not, that takes time.

While such a transformation may come, depending upon how long you remain in your host country and how impacted you are by their culture, until that impact happens, small adaptions will show your hosts that you respect their culture and are making an attempt to integrate where you can.

Cost/Value

The bottom line when deciding what to adapt to and what to simply accept is drawn by the personal cost to you versus the value behavioral changes may add to your life in this new culture and your success as a manager.

Does adhering to the culture’s dress code come at a significant cost to you? Does the value of “fitting in” outweigh whatever cost that may be?

Those values and norms which are not in direct contradiction to your own culture’s should be easy enough to adapt and should be what you actively implement first.

Although the behavior may feel unfamiliar (greeting your French colleague by a kiss on both cheeks, for instance), after normal processing, such behaviors will feel more or less natural.

In fact, give it time, and you may not even notice you’ve adapted to another culture.

Next week, we’ll discuss the type of adaptions that you will notice and how to get over that discomfort. Stay tuned.

Acceptance & Explaining Your Cultural Behavior & Beliefs

While adapting or adopting another culture’s behaviors or beliefs will help you integrate, you may instead choose to stop at acceptance through active tolerance.

When actively tolerating a foreign culture’s values or norms, you don’t necessarily have to take the next step.

However, remaining in acceptance means remaining a monkey in the foreign culture.

Although you don’t condemn their beliefs, you retain yours, which means you are different. And your odd behavior will be noted by locals.

Some might even view your conflicting behavior and values as offensive. Then again, you are entering their culture, so you cannot expect them to adapt to you.

But choosing not to adapt comes with a caveat: you must explain yourself.

Otherwise, a monkey moment might derail your success across cultures.

Monkey Moments in Language

A “monkey moment” is an encounter of cross-cultural misunderstanding.

When you choose to continue in your own cultural behavior while practicing active tolerance, explaining yourself to your cross-cultural counterparts is key to diplomacy and respect.

Don’t ignore the disconnect; explain why your behaviors or perspective differs from theirs. Building bridges of cross-cultural understanding allows you to be a monkey without all the negative connotations that come with it.

One specific example involves language: the formality of “you” in some cultural environments.

Consider the Swiss and the German, for example.

Germans are more formal than their Swiss neighbors, which means they use the formal, “sie,” for a longer period of time in workplace settings than the Swiss. Swiss move on to the informal, “du,” much sooner, even with their higher-ups.

For those who come from cultures without this distinction, using “sie” is like using someone’s last name, while using “du” is like being on a first-name basis.

When a German financial manager moved to Switzerland, he insisted on using the formal, “sie.” In doing so, he formed a cultural barrier between him and his team.

The more formal language made him appear less approachable and even arrogant.

Cut to a couple years later: the German manager wanted to enroll his executive team in a Swiss bike race as a team-building exercise.

Though the team excelled in the race, they weren’t remembered for their success: they were remembered for their use of the formal, “sie,” amongst themselves. Some viewed the strange usage as similar to a team captain insisting on being called “Mr. Johnston” by his teammates.

Not only did this tarnish the CEO’s rep; it tarnished the company’s image.

The Explanation

When the CEO finally understood his monkey moment after four years of working with his senior executive team, instead of simply switching to “du” unexpectedly, he explained his behavior to them and his rationale.

Describing how he’d grown up in a traditional German family, he explained that informal language always sounded inappropriate to him in a professional setting. He also expressed that it wasn’t that he wanted to be formal; rather, he wanted to communicate respect to his colleagues. However, being that Swiss culture didn’t view the informal “you” as disrespectful or inappropriate in a work environment, he proposed that from that point on, they would switch over.

Although in this situation, he chose to adapt to the culture’s approach to language, he would have avoided misunderstanding straight off had he explained himself from the beginning.

Still, in the end, his explanation made him a stronger leader and managed to bring his team together.

“Tolerance Ends Where Harm Begins”: The Boundaries of Active Cultural Tolerance

As with everything, even active tolerance has its limits.

Certain cultural traditions are inhumane and do not have a place in today’s world (or in past worlds either).

Examples spring to mind: corporal punishment in schools; female circumcision; adultery resulting in the death penalty by stoning.

Must we apply active tolerance toward such norms in order to be culturally sensitive?

The answer is no.

The legitimization of such cultural traditions is criminal.

But, to many, where to draw the line of tolerance is not strictly defined.

The Line for Tolerance

The best definition for the boundaries between tolerance and intolerance regarding culture comes from Randy Cohen, a columnist for The New York Times.

In his column, “The Ethicist,” he explains why we should not tolerate all norms for the sake of religious and cultural respect, writing,

“Tolerance ends where harms begins.”

Actions and behaviors do not get a free pass simply because they are deeply ingrained in a culture’s history and tradition.

While some actions may conflict with moral barriers cross-culturally – like the polygamy in certain cultures discussed in last week’s post – the question is whether or not there is explicit harm as a result of the action.

My father did see some harm in the fact that polygamy could lead to forced marriages of underage girls, and he focused on remedying that by building the affected women a shelter. However, he found consenting polygamous relationships were not, in and of themselves, harmful, so he chose to actively tolerate them, as doing the opposite would directly harm all women involved.

However, as Cohen states, harm – both physical and psychological – is where you might draw the line.

Active or passive cultural tolerance should end there.

The Line for Tolerance is Not Universal

Search Wikipedia, the largest human knowledge repository, for the term, “tolerance,” and you will find, in accordance to the many philosophers who’ve written upon the topic, the idea of the “right of man.”

The “right of man” is the basic human right to live without being harmed by others.

As there is no universal line for tolerance, you are on your own to draw it for yourself when living and working in a foreign culture.

But isn’t this where you should draw that red line?

Asking yourself whether or not physical or psychological harm is done in regards to another culture’s norm or value is the delineation of tolerance.

Keeping your personal integrity intact means knowing your boundaries of tolerance.

Staying within these boundaries will fortify your own beliefs and values while allowing for your understanding and acceptance to explore to the very edges of those boundaries.