In the course of developing decision-making skills, we often find ourselves making comparisons.
Should I choose this or that? In general, when we are aware of our tendencies to bias, we also reduce the likelihood of bias. Here’s the moral of the story. Developing self-awareness, of our emotions and of our biases help us to be more effective in the workplace, and to provide more consistent and fair evaluations. The reason is because when we employ “this or that” thinking, we trigger something called the contrast effect.
The contrast effect works something like this. If you had a piece of art standing alone by itself, you would develop a certain perception of it. Now, if we put 5 of the all-time greatest pieces of art mixed in and around it, do you think your perception of the piece of art would change? Sure it would, and probably not for the better. We judge something to be beautiful, expensive, or large if we have something ugly, cheap, or small in front of us to contrast with it.
We judge something to be beautiful, expensive, or large if we have something ugly, cheap, or small in front of us to contrast with it.
Here’s another one. You order leather seats for your new car, because, compared to the $60,000 price tag of the car, $3,000 seems such a small fee to pay. All industries that offer upgrade options understand this very well. Many scientific experiments show people are willing to walk an extra 10 minutes to save 10 dollars on food. But those same people wouldn’t dream of walking 10 minutes to save 10 dollars on a 1,000 dollar suit. This is irrational. Why? Because 10 minutes is 10 minutes and 10 dollars is 10 dollars. If you employ straight logic, you should walk back in both cases or not at all.
Think about it, a product that has been reduced from 100 dollars to 70 dollars seems a better value than a product that has always cost 70 dollars. In reality, the starting price should play no role. Either the item has value at 70 dollars or it doesn’t. The contrast effect causes us to react like birds and a gunshot. If someone tells us it used to cost X and now it costs Y, we are ready to buy buy buy! The stock market is a place where this really plays with people. A person gets excited because they bought a stock that is 50% below its stock market high. Why is that crazy? Because it doesn’t matter what it’s high price was, it only matters what it is worth today and whether it goes up or down from that point. Our blind spot shows up when the changes are slow and gradual. Identity thieves have figured out that If money leaves our bank account one dollar at a time, we don’t notice it as much as if one hundred dollars is debited at once.
Another place the contrast effect shows up in decision making is when we are making hiring decisions with applicants. It occurs when there is a particularly good or bad applicant, who becomes the benchmark against which other applicants are evaluated, thereby distorting the interviewer’s evaluation of all subsequent applicants. For example, after evaluating a low caliber applicant, the interviewer may give the next applicant who is merely average an extremely high rating simply because he appears significantly better than the previous applicant. This is why we advise companies to screen and select applicants based on job and applicant data that is fixed and standardized rather than through the interview process only.
So how do we avoid the contrast effect when making decisions? Well, often times, when we’re succumbing to the contrast effect, we’re looking at option A versus option B. To combat this, you need a standardized method of evaluation, such as the one I mentioned above in the hiring scenario. Decide in advance a standardized way you are going to evaluate each option rather than comparing them. Outside of that, you need to remind yourself that you hardly ever have only two options. Whenever you find yourself faced with a decision between two options, it can be useful to consider other options, just in case you’ve fallen into the trap of the contrast effect.
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