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Following your instincts has long been the hallmark of the entrepreneur. It is precisely that mental cocktail of drive and self-confidence that turns a start-up into the powerhouse it has the potential to become.
But what if your instincts are wrong? We’ve talked about the fear of failure, the multitude of reasons your business could fail, to learning from other’s mistakes. But what if your worst enemy was your own mind?
In this article, we’ll be looking at some common subconscious traps, or logical fallacies, that your mind falls into that cause you to make wrong or costly decisions. But more importantly, we’ll provide tips and advice on how to beat them.
“Never ignore a gut feeling, but never believe that it’s enough”
– Robert Heller
Seeing the answers you want to see
While you may believe yourself to be fairly open-minded, your subconscious actually accepts and rejects information according to what you want to believe.
The Texas Sharpshooter fallacy is the trick our minds play on us where we see the answer we want to see, and take whatever correlating evidence we can to support it.
This fallacy is named after a man who shoots at an unmarked wall, and draws the bulls-eye around the shots after he’s done, and then tells himself that he’s the best sharpshooter in the world.
A classic example published by the New Yorker describes when public health officials believed that several towns in the US with growing rates of cancer were connected in some way. After devoting huge amounts of effort, time and money to find a common environmental cause to support their hypothesis, they ultimately found little evidence to support their claim.
Entrepreneurs do not have the luxury of having effort, time or money to waste on failed ventures or bad decisions.
Pawel Brodzinski said about failed project Overto
“Since the service was our child we were reluctant to make a decision about closing it faster and limit losses. We’ve been tricking ourselves thinking that everything would be fine while we couldn’t get the application back to work properly.”
An international 2013 study on stock investors showed that those exhibiting a confirmation bias were more likely to be more overconfident with their decisions, have higher expectations of their performance, and trade more frequently. Consequently, they were more likely to obtain lower realised returns, and to make more mistakes.
How to beat it
- Constantly update your information. As this white paper suggests, you have to consistently keep yourself informed about anything and everything that related to your field. Try to keep as up-to-date as possible.
- Work in groups. Working in groups is much more effective in beating this mental trap than working alone, because beating it requires you to step outside your own head and admit that you might be wrong.
- Diversify your information sources. It isn’t enough to just be up-to-date if you’re reading from the same source, because all you’re getting is the same opinion over and over. Find different sources of information- especially those you might not necessarily agree with. As Sutcliffe and Christianson write
“Updating requires doubt”
You’re not an accurate judge of skill
A recent international study has coined a new term called the ‘equality bias’. The study asserts that people are more likely to change their answer to accommodate the group, even if it’s the wrong answer.
The experiment was conducted by having two players play a simple game in which they view two successive images. One of the images is slightly different, and together they have to choose which one it is. The study goes on to show that despite it being obvious that one player is better than the other, they were more likely agree with the negative partner.
The study concluded that we give other people’s opinions as much weight as our own, despite the obvious difference in skill – all for the sake of appearing fair and equal.
The problem is magnified even more in larger groups, with individuals reporting more stress, miscommunication and struggle in trying to appease everyone in the group.
There’s also the problem where we overestimate our own or other people’s abilities based on perception, also known as the Dunning-Kruger effect.
We all know that person- the one who’s scanned a couple of headlines, or attended one seminar, and think they know everything about a subject. But they speak with such confidence that you can’t help but believe them anyway.
This is why the science of body language is so important. How we process information is entirely dependent on how we receive that information. And ironically, the loudest and most confident voice tends to be the most incorrect.
Captainitis is the logical fallacy where subordinates in a group blindly follow orders based on someone’s perceived authority. This is a well-documented psychological phenomena as Shari Fisinger explains.
How to beat it
- Always question authority. And I don’t mean this in a teenage rebellion kind of way, where you question leadership just for the hell of it. But don’t be afraid to ask for the rationale behind a decision a peer or leader makes. It helps with communication between parties, allows for a better operational flow, and gives you more opportunities to learn.
“Leaders who make it a practice to draw out the thoughts and ideas of their subordinates and who are receptive even to bad news will be properly informed. Communicate downward to subordinates with at least the same care and attention as you communicate upward to superiors.”
-L. B. Belker
- Keep your start-up as lean as possible. While the financial reasons are obvious, keeping a start-up lean also means assigning specific roles and responsibilities to team members, meaning only one person in the group should be the authority on that subject. This doesn’t mean you should follow them blindly, but understand your own limitations and give them the space they need to work in their specialised field.
- Allow for discussion. Compromise isn’t always the key- sometimes the answer is really black and white. If someone is spouting misinformation that goes against your better judgment, you shouldn’t change your answer to suit theirs. Both parties should come to an understanding of why one decision is better than the other- the reasoning should be transparent for everyone involved.
You ride out a bad decision
It’s hard cutting your losses. It’s hard taking risks. The combination of these two factors create what is known as the Sunk-Cost fallacy, otherwise known as the Concorde fallacy, named after the infamous multi-million aviation project between Britain and France that lasted for decades, and ended in disaster. All because both governments refused to back out due the resources already invested.
Economists will recognise the term ‘sunk-cost’ as an investment that can never be recovered.
The completely logical and rational mindset is to accept the loss in investment and move on, but this is where your mind traps you. You have to see some sort of return of investment even if it’s worth nothing.
A research paper by MIT uses the example of buying a non-refundable pre-paid ticket to the opera. On the night itself, you don’t feel like going anymore, but despite logically knowing that you can’t get the money back, you will still feel compelled to go. Even though you know you won’t enjoy the night out and would benefit more from staying at home, you choose to go for the sake of your sunk investment.
The Sunk-Cost fallacy is partly fuelled through our subconscious desire to prevent losses rather than to make gains, otherwise known as loss-aversion.
This means that subconsciously, when given a choice between the two, we tend to choose the safe path of fewer losses rather than taking risks for potential rewards, no matter how much we could gain objectively.
How to beat it
“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
- Remember that time is more important than money. Take a step back and look at the bigger picture, and see what your lost investment for what it is in the grand scheme of things. You can’t recoup your losses, but you can spend your time more wisely. As clichéd as it is, always remember that time is a commodity you can never get back.
- Be honest about your losses. For every loss you make, or any goal you didn’t reach, write a descriptive report of all the factors that contributed to it. While not only useful for later strategies, it will force you to confront any ongoing trends as to why you are failing. If there is a pattern of forces you cannot control, then cut your losses.
- Get comfortable with loss. You can never be entirely comfortable with losing- emotion will always play a part in decision-making. But you can get into the habit of being more productive with these everyday situations. If you’re full with a meal, don’t feel forced to finish it because you feel like you’re wasting it. Walk out of a movie you don’t like- trust me; it’s not going to get any better. Get into the habit and mindset of being okay with loss and learning how to move on from a bad investment.
It’s easy to forget planning isn’t the same as doing
Sometimes it can be difficult trying to distinguish between planning and doing, even though on the surface it seems simple enough. The trouble is that whenever we feel like we’ve succeeded, no matter how small a success it is, the brain rewards us with dopamine, the chemical responsible for pleasure.
The issue is that the brain cannot distinguish between the priority in goals. It’s easy to trick yourself into believing you’ve succeeded in doing something, when in reality, you haven’t really made any progress.
Here’s an example: writing an in-depth SEO analytics report is planning, actually implementing it and creating content is doing.
While no one here is arguing that planning isn’t a vital step, you should avoid growing complacent with just planning alone. Too much planning runs the risk of being indistinguishable from procrastination.
The mental trap of constantly planning also stems from the imaginatively-titled Planning fallacy. Multiple studies have shown that people consistently underestimate the amount of time or resources it would take to complete any given task, especially ones of immediate urgency.
Our mental process is optimistic, and it fails to adjust for any potential mishaps. This leads to a gross miscalculation of time and resources, as well as fostering an attitude of wanting to wait for the right conditions. Many would-be entrepreneurs never move past the planning stage, as they are always waiting for the right conditions or the right time.
“Don’t wait until everything is just right. It will never be perfect. There will always be challenges, obstacles, and less than perfect conditions. So what? Get started now. With each step you take, you will grow stronger and stronger, more and more skilled, more and more self-confident, and more and more successful.”
– Mark Victor Hansen
It’s a dangerous place for any entrepreneur. To constantly feel rewarded for planning but not doing, and always waiting for the right conditions, and of course the profound fear of failure; all of this amounts to someone stalling, and ultimately, achieving nothing.
How to beat it
- Create a work schedule. While one of the benefits of working for yourself is having a flexible schedule, you should still develop good work habits and set yourself a schedule. Be disciplined and stick to it.
- Parkinson’s law. Make it work for you. Create restrictions for yourself to foster creativity and efficiency, manage your time better and set goals realistic goals for yourself.
- Set realistic deadlines. A good rule of thumb is to take any projected deadline, and add a third of the time on top of it. Mishaps are inevitable, especially those that you never even planned for. Don’t commit the classic mistake of overpromising and failing to deliver.
Believing the odds are in your favour
Entrepreneurs, just like everyone else, notice patterns, and often mistakenly believe they are somehow important or significant in some way.
The Gambler’s fallacy is the when an individual tricks themselves into believing that they are ‘due’ for a win or a loss based upon a previous streak of wins or losses.
Imagine you’re flipping a coin, and it lands heads up five times in a row. You’re more likely to believe that the chances for tails to come up next have risen because it’s ‘due’, when in reality the chances remain 50-50.
Neglect of probability, as you’ve probably guessed from the name, is the inability to factor in objective facts when making a decision. Believing that there are only two outcomes, both with a 50-50 chance of happening.
As previously mentioned, how we process and retain information is dependent on how we receive that information. Our brains are inherently faulty when it comes to retaining information.
Our minds are more likely to remember song lyrics, or anecdotes in favour of objective statistics.
In a 2003 study, researchers told subjects about how they should not wear seatbelts, with stories as evidence. These included a woman who was trapped in her car and drowned, another about how they couldn’t escape the burning vehicle and died.
With only this anecdotal evidence to go by, the subjects concluded that seatbelts were just as likely to kill you in an accident as save you- despite the objective evidence to the contrary.
How to beat it
- Explore other solutions. Gambler’s fallacy relies upon there being only two solutions to a single problem- that you either ‘win’ or you ‘lose’ depending on the scenario. In reality, the answer isn’t always so black and white. Thinking outside the box involves looking past the apparent solutions provided, and coming up with your own.
- It’s not 50-50. While this may seem simple to remember, it’s actually quite surprising how often people forget this when making a decision. Consider the facts, and question yourself as to whether or not you’re being irrational and letting your emotions get the best of you.
- Don’t entertain all possibilities as true. Just because something sounds like it could be true doesn’t necessarily mean that it is. Update your information, and do your own research about anything that you’re unsure of. Speculating is for those too lazy to research the information for themselves.
As an entrepreneur you’re tasked with making tough decisions everyday. So it’s vitally important that you make the right one, as one wrong move can prove to be a very costly mistake.
Hopefully this helps you to start thinking outside of the box now that you know what the box looks like!
These mental traps are these and are very easy to fall into, but these strategies suggested can help you get out of them and develop the very important skill of being a critical thinker.
If you found this post helpful then please comment and share it to any of your friends that you think are stuck in a mental trap and need a little bit of help!