7 Cognitive Biases that influence the usage of KPIs

Lists apparently do well in blog titles. A total of 865 times my blogs were read (not counting my own clicks). The last blog called The five most overrated KPIs broke a record and was viewed 60 times (I say viewed because of course I can't tell whether they were actually read). I don't count the number of views as a KPI, but just to be sure I again present a list today

Remember one of my first blogs "Why we (really) use KPIs"? I talked about the workings of our brains and the two systems that make it operate. There was the "automatic" pilot governing our behavior most of the time (making the brain the efficient and effective organ it is). But when we have a more difficult taks to fulfill the non-automatic system jumps in (using it is tiresome though).

The problem is that we tend to think that we make our decisions deliberately and after solid reasoning. Unfortunately the brain system that we use most takes shortcuts, is lazy, loves stereotypes, and likes to go on as soon as possible. It is the price we pay for the enormous task we set the brain to do. 

Researchers already know for years that we make mistakes all the time without even noticing. Cognitive biases are the tendencies of our brain to make all sorts of mistakes. Mostly we are not aware of these biases. And nobody is immune to them. We cannot turn of our automatic pilot and therefor we cannot be completely bias free.

Here is a list of 10 cognitive biases that might diminish the effectiveness of KPIs*:

1. Cognitive Dissonance
We tend to ignore, ridicule or downplay information that conflicts with our beliefs or convictions. The stronger the belief, the stronger the effect. It takes a lot of effort to objectively look at conflicting information. This can have an effect on the usage of KPIs on several levels. Especially when "red flags" are ignored because we think it will turn green again soon.

2. Risk Aversion
In general our decisions tend to be risk averse, especially if we have to make them in a split second. This effect is studied thoroughly and is found in many social situations. With regards to KPIs this could result in choosing thresholds that are too low (playing safe) resulting in many false positives. But Risk Aversion can also lead to thresholds that are set too high avoiding the risk of getting the status red (and the risk of tough discussions with your management)

3. Confidence Bias
Our fast and automatic brain system is not prone on doubt. It hates doubt and will construct a story that makes what it sees true and coherent. So even when a KPI is indicating to an obvious wrong number, our over-enthousiastic brain will at first try to make it true. Only with effort we are able to see the wrongness for what it really is.

4. Causation Bias
Our hasty brain sees patterns all around us (even when there are no there). One them is the causation pattern. When we some events that correlate, we tend to apply some causal thinking. In the past this has led to many wrong assumptions and mistakes. When creating KPIs this can lead (among others) to selecting useless indicators, as it is wrongly assumed that they measure the underlying causal mechanism for performance.

5. Availability bias
Make a list of three situations where you showed assertiveness. Next, evaluate how assertive you are. Of course you are biased answering the second question. The three situations might come easy and therefor might give you the impression that you are assertive indeed (I'm not saying you're not). But the easier you can come up with a long list of something, the more it will affect your judgements later on. For KPIs this could mean that you will choose those indicators that easily come to mind and think that they must be good because of the fact that they came to mind that easy.

6. Anchoring
How many calories are there in MacDonald's Big Mac Burger (7.6 oz)**? Just take a guess and formulate your answer before you read on.


Is your answer around 850 or maybe 60? Then you where the victim of Anchoring. I deliberately added the numbers 856 and 60 in the intro of my blog. These numbers tend to stick for a while and they influence decisions later on. 

7. The illusion of understanding

Our brain has to deal with tons of information every minute (even when we are asleep). In order not to get completely insane our brain starts from the default position that the world outside in general makes sense and information we receive is coherent an unambiguous.  Because we think we know the past, we assume that we know the future. And with a great deal of "I knew it all along" attitude we arrogantly think we understand it all. We are in general ignorant of our own ignorance. KPIs in general are based on our past experience and by applying them think that we can control or predict future events.

Next time we'll zoom in on this last illusion by talking about the effect of unexpected events.


* The list and some of the text is retrieved from the book Thinking Fast and Slow by Daniel Kahneman
**The number of calories in a Big Mac is about 550 (calorieking.com).