What is your best estimate for the length of the Amazon river, that is, the estimate for which you think that the odds of the true value being above your estimate are as high as the odds that it is below? miles.
Imagine I tell you that your estimate was too high. What is your best estimate now? miles long.
Now imagine that your first estimate was too low. What is your best estimate now? miles long.
Now consider again the full range of possible answers. What is your highest estimate - such that your subjective probability for the actual length of the river being above this estimate is 1%? miles long
Pick a low number and a high number, such that you are 90% confident that the population of Bulgaria is between those numbers? Between and .
What do you think the total egg production in the United States is? eggs produced per year. How confident are you in this answer? % confident.
If you're like most people, you're surprised by the real answers compared to your confidence. In this case, this is due to the Overconfidence Effect. But if you think you're in the clear once you've overcome this effect, you're not - there are many other biases.
So, how does this affect your business?
Daniel Kahneman is a psychologist who, without a PhD or any formal education in economics, won the Nobel Prize in Economics for work on these biases. A lot of his research dealt with decisions in the boardroom, the sort of decisions that affect your business!
When determining what investments to make, it is usually the loudest person in the boardroom who wins. His sentences might start with "I know that our customers want us to invest in ...". The rest trust his loudness, put the investment into action, and later find out that it was not what the customer wanted at all. This will repeat and repeat until the company is out of money. Even knowing you have biases doesn't help.
How do we conquer these biases and make good investments into what our customers actually want? Through many years of lessons learned, we have found that all you need is a sheet of paper printed from our software. When anybody walks into the boardroom with a physical list of what they need to do for the customer, based on (1) what the customer said, (2) how much it will be worth to them, and (3) what kind of returns they expect to get, it quickly shuts down the loudest voice in the room and creates smarter investments. Such data will steer you past the biases, so when you think you're better than average, you'll actually be right!