There are a number of biases, actually way too many to even wade through on the internet. These biases affect our decision process as the mind applies the bias filter automatically to the facts and the thought process.
I’d like to talk about this bias for which I have no technical name, so lets call it “setup bias”.
Setup bias is a bias that estimates a future outcome by giving too much credence to preconceived (mostly factual) capabilities of certain factors and at the same time discounting unimportant (again preconceived) factors.
For example, Mavericks were such a great teams last 2 or 3 NBA season. However, they melted when time came in playoffs. As an effect of this bias, I’d have bet that Mavericks would win all the way. My reasoning is based on the talent of individual players and how much talent they had. I really thought they were a much better and should have won the NBA title. So what happened? A number of factors came in that I ignored or haven’t given importance. In this case, its many things: mental toughness, luck, perisistence of opposite team, Pat Riley believeing in his core that his team will win (saw in an interview just before the 3 or 4th game).
Setup bias:
(Mavs) Talent of individual players as a whole, Deep bench, tenacious owner (with software that is optimizing the stats and giving them edge), great coach (very enthisiastic)
(Heat) Talented team, but no where near Mavs, Coach that hasn’t won in a while
Assumption: Mavs would win NBA title.
So what happended: Heat won the title.
Reality: No Luck (Mavs not scoring for minutes), Pat Riley not believeing that he’d lose and his team buying it – this confidence made them perform better when it counted, Mavs coach turned out to be not so good at playoffs where mental toughness is much more important than any other factor and he didn’t prepare his team for that (btw Phil Jackson is the master here)
In this case, somebody else won the NBA title. Not a big deal! But what happens you are in a situation where a lot of money is at stake.
Lets say you like this company because they have unbeatable business model, a royalty stream that is endless and a powerful engineering team and seemed like perfect setup.
Would you put all your eggs in one basket of this company? Well I did. Then the reality kicked in.
There is a number of hidden and unforeseen factors (that were no where in the horizon) came to roost on negative side. Suddenly the momentum is gone and the stock went nowhere. Still I am not writing it off. But I missed many opportunities because of this inaction caused by this bias.
Please be mindful next time when your are taking big decision. Are you giving way too much importance to some factors and ignoring others. Even if there is no other negative factors, never underestimate factors such as pure (un)luck, tenacity of the other side even if untalented.
