3 Mechanisms That Bias Our Decision-Making: REVIEW

Why do we make the decisions that we do? How do we rationalize these decisions?

Research is constantly evaluating how and why business managers make the choices we make, which we’ve outlined over the last few weeks.

To sum up, the three main biases discussed:

  • Availability bias – involves making a decision not based on an outcome’s true frequency/probability, but rather on how frequent an event enters the forefront of one’s mind.
  • Representativeness bias – involves judging the likelihood of an event based on how closely it relates to another event – i.e., on a mental model that does not exist in reality.
  • Anchoring bias – involves reaching a decision from an initial set point, often grounded in your culturally-influenced values and norms.

However, these are only a few ways in which culture creeps in to bias our decision-making.

Even our confidence in our decision-making ability is often influenced by culture.

Confidence in the Veracity of Decision-Making Ability

Research shows that, compared to their U.S. counterparts, Mexican managers are exceedingly confident in the veracity of their decision-making.

In a study by Christine Uber Grosse, entitled, “Global Managers’ Perceptions of Cultural Competence,” one Mexican manager explained the differences between leaders in Mexico and America, saying:

“We in Mexico are more colloquial or informal and are not so inclined to statistics. The Americans are very ‘manual-oriented’ and organized and we are more relaxed and ingenious.”

So, while before committing to a decision, U.S. managers expect to hear a complete plan laid out, including costs, a schedule, and the target results, Mexican managers rely more heavily on their gut instinct.

Moreover, when Mexican managers commit and something fails, they are more likely to double-down on that commitment, throwing good money after bad (as U.S. managers might put it).

According to research conducted by J. Frank Yates and Stephanie de Oliveira (“Culture and Decision-making“):

“A high degree of overconfidence has been found among Mexicans relative to Americans (Lechuga & Wiebe, 2011)…Overconfidence was widespread but differed in degree according to region.”

This overconfidence was attributed by the authors not so much to a manager’s judgment in confidence, but rather to differences in ability, as the latter varied substantially across countries.

Simplified Mental Models

Tying this all together with cross-cultural business, knowledge of the biases that influence decision-making – and another’s confidence in their decision-making – will help you navigate another culture’s rationale while also redirecting yours accordingly.

With various worldviews and cultural backgrounds, subjective realities exist, resulting in different mental decision models.

But one thing is universal: managers use their simplified and biased mental models to make their decisions.

Although likely different than your own, their simplified mental model is not irrational; it is based upon their subjective cultural perception and reality, just as yours is.

Oftentimes, no matter how illogical a decision may seem to you, the other is acting rationally within their own cultural framework, their baobab.

So, before concluding that a foreign manager’s decision makes no logical sense, familiarize yourself with the culture, its perception, and its reality.

You may then understand how a manager’s availability, representativeness, and anchoring biases – or any other culturally-influenced bias – enter into their decision-making.

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: 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.