Cognitive bias and contracting

What is a cognitive bias? These are shortcuts to help us act and think efficiently, and (in the past) to survive. They also help us understand each other better.

Sometimes these are referred to as the curse of knowledge. Not all of these shortcuts are based on logic!

There are nearly 200 different cognitive biases according to Baumann, which were organised by Benson into 4 categories:

  1. we aggressively filter information (the world is a set of information that’s too enormous for our brain to handle)
  2. we fill in the gaps (because we can’t grasp everything, we’ll always be missing a lot of essential information)
  3. we jump to conclusions (to act fast, based on a limited information)
  4. we try to remember important stuff (but it is impossible to remember everything).

How bias impacts contracting

Articles suggest that these cognitive biases negatively affect your:

  • decision-making
  • leadership
  • sales
  • change management
  • information retrieval
  • deal outcomes.., and so on.

Some of the biases which you might be familiar with include steretyping, sunk cost fallacy, occam’s razor, your blind spot, anchoring, self-serving, over-confidence, heuristics. Some principles that struck me as relevant to contracting include:

  • we reduce information to its key data – we don’t remember the minutiae of contracts (especially when they are complex)
  • we discard specifics in favour of generalities – we don’t like new stuff
  • we favour simplicity over complexity or ambiguity
  • we avoid decisions we consider to be irreversible
  • we think we know what other people are thinking (especially about what our contract words mean!)
  • we are drawn to information which confirms what we think, rather than challenges it
  • we tend to notice the unusual, bizarre or visually-striking (so make your contracts more interesting).

What should you do?

Stop assuming that you know enough to make good (or even rational) decisions – work collaboratively to minimise information loss and personal biases.

Be prepared to challenge colleagues or a contract administrator who is clearly relying too heavily on a specific information or emotional bias.

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