Do you know how stereotypes are formulated? It’s through an illusory correlation. People have a tendency to jump to conclusions about the relationship between two variables, even when no causal relationship exists. All jocks are dumb, women are not as smart as men, blonde-haired women are unintelligent...you know where this is going. Yes, these relationships may be true in some instances, but not for the majority. This mental error leads to poor decision-making.
People often make mental errors based on a few, unrelated instances. For example, if you were to pull sales data from a few sales people in one territory and they were all poor performers, you may jump to the conclusion that it is a poorly performing territory or has a weak sales manager. You made an illusory correlation between a few samples and overall performance. What if you happened to pull samples from new hires or someone that just returned from paternity leave, or someone from an acquisition? Remember that correlation IS NOT causation. You must remember that from Statistics 101. In fact, there is a .91 correlation between sour cream consumption and motorcycle accidents. So, does this mean you should not eat sour cream and then ride a motorcycle? Alternatively, if you ride a motorcycle, do not eat sour cream? Absolutely not! It means that there is some other unidentified variable(s) contributing to the relationship not taken into account in the model. Maybe all motorcycle drivers should avoid sour cream on Taco Tuesday!
We tend to overestimate the importance of events we can easily recall and underestimate the importance of events we have trouble recalling. The easier it is to remember, the more likely we are to create a strong relationship between two things that are weakly related or not related at all. Why do we need college degrees when Bill Gates and Mark Zuckerberg dropped out and became successful?
How do you overcome the illusory correlation effect?
1. Be aware of your innate ability to look for causation where it does not exist and think about how it may be affecting your decision-making.
2. Use scientific strategies to protect yourself against your own biases. Once you ‘re aware of how fallible your own intuitions are, you’ll become more willing to employ a scientific approach to prevent poor decisions and errors. It does not necessarily mean that all decisions should be made based on analytical thinking over fast intuition, but it’s important to know when to apply different types, or a blend, of decision-making strategies.
3. Build a contingency table to check your thinking.
A contingency table helps you consider other options when making a decision, and it lays out your potential biases.
4. Employ unbiased, third-party experts to help you eliminate potential mental errors. Outsiders bring a fresh perspective. They do not have the same reference points or emotional attachments to investments and projects. They also lack your preexisting hypotheses and the political egocentrism.
5. Encourage effective group dynamics with rigorous dialogue and debate.
Smarter People Planning protects you from illusory correlation by proving transparent results and offering multiple scenarios. We model a range of possible outcomes and give you options.
Have you made decisions based on illusory correlations? What will you change in order to spot future mental errors?