Cognitive bias, house buying and product decisions

Buying a house is apparently one of the most stressful things you’ll ever do. You have to make lots of big and expensive decisions. Going through the process for the 3rd time this last few months got me thinking about the cognitive biases involved in the house buying process. Naturally I then started comparing them to the types of decisions I have to make as a product manager (because that’s the type of guy I am). Which then naturally led to a blog post. Naturally.

In my recent post about my favourite digital tools for house buying, I proclaimed that I had found my forever home, and would never be using Rightmove or Zoopla again. Three days later, something came up in the survey, and the purchase collapsed. This story has a happy ending: I ended up finding a different house which is better in many ways. But to avoid any repercussions from angering the Gods, and because moving house is actually quite a lot of hard work, I have delayed the publishing of this post until well after the move date.

Cognitive Bias in House Buying & Selling

Cognitive dissonance

You know that horrible feeling you get when someone says something that challenges one of your strongly held beliefs? That is exactly how I felt when my Dad pointed out that my lovely brick built house was actually made of timber on the inside. I have almost 40 years of experience (yes, I am nearly that old now) in ignoring my Dad’s advice and learning lessons the hard way, so I did try hard to take him seriously. There’s also that nursery rhyme about the three little pigs, and the one with a house made of wood gets eaten by a wolf and the one with a house made of brick survives.

But I really did love this house! So off I went on a journey of evidence based research to discover the objective truth about whether this was an issue or not.

Three little pigs, with the pig whose house is made of wood getting blown down by the big bad wolf — *The estate agent tried to tell me that there was no difference in price between brick and timber houses, despite what I had learnt from nursery rhymes. Image source*

Confirmation bias

Confirmation bias is the tendency to look for information that confirms your beliefs. Over the course of 24 hours, I spoke to insurers, estate agents, lenders, architects and timber-frame housing repair specialists. About two thirds of the people I spoke to said it was not an issue, and that I should go ahead as planned. These are the types of people whose opinions I enjoyed listening to! The more sceptical third warned me away – triggering that not so lovely feeling of cognitive dissonance all over again.

Sunk cost fallacy

The sunk cost fallacy is the tendency to continue an activity because of the time, money or effort already invested into it. Fortunately I had not spent too much money on this house (largely thanks to Juno’s second chance guarantee. Thanks again Juno! Best conveyancer ever). But I was 6 weeks into the process and was emotionally invested. I had a vision of living in this house and had started planning my renovations and extensions.

However, it makes little sense to factor historical costs in to future decisions. The past is the past, and what matters is that we make the best decisions we can with the information we have now, based on the future cost/benefit.

Bandwagon effect

Bandwagon effect is the tendency to believe things because other people do. I looked around at other similar properties in the area. There were not many of them that had been sold in recent years, but 1 or 2 had recently sold for good prices. My inclination was to believe that if others had paid a decent price, then I should feel safe to pay a decent price too.

However, there was good reason to believe that those buyers might have been blissfully unaware of the stigma associated with that house type, and not had the benefit of a know-it-all father to enlighten them that there might be a problem. It is also likely that buyers hadn’t known about the construction method when they bought the property. Apparently only 16% of house purchasers get property surveys done at all. Given that the houses were less than 40 years old, there is a good chance these buyers hadn’t bothered with surveys.

How this relates to big product decisions

Working in product management, I make many decisions every week. There are countless examples of me getting things wrong because of cognitive bias which have cost my teams time and money. Here are just a few:

Taking too long to change the strategy (sunk cost fallacy)
Hesitating to take risky decisions due to attaching too much weight to fear of loss (loss aversion)
Persevering with a feature despite user research indicating that it is unlikely to have the desired impact (confirmation bias)
Overestimating product demand/benefits (optimism bias)
Underestimating cost/effort (planning fallacy)
Prioritising features because that is what has worked for me before and what others seem to be doing (anchoring bias)
Overestimating my own knowledge about an area that I don’t understand well enough (Dunning-Kruger effect)

This is just a very short list of cognitive bias that can get in the way of decisions. For a complete list, check out this awesome cognitive bias codex from Wikimedia.

The techniques for dealing with these cognitive fallacies apply to product management, house buying and most other domains where decisions need to be made. Which is good news for geeks like me who like trying to apply product management principles to their lives! Here are some of the techniques that work.

Dealing with cognitive bias

Mindfulness

Paying attention to my thoughts helps me identify when I might be experiencing some sort of cognitive bias. If something doesn’t feel right, I have the tendency to try to brush over it, ignore it and press on. But feelings of discomfort like this should be a signal that something requires further investigation.

Write things down in decision tables

I think by writing. I think particularly well by writing things down in decision tables. The types of decision tables I like to use are:

Simple pros and cons table

Pros on the left. Cons on the right
Good for simple decisions or starting out with thinking

More complex decision matrixes with multiple criteria. My go to format is:

Treat each option as a column
Treat each factor as a row
Colour-code each cell according to how much it aligns with each option
Order rows with the most important factors at the top
Good for more complex decisions or where there are more than 2 options

Writing and looking at information in this format helps me make better decisions, and provides an objective way for others to understand the factors in a decision and challenge assumptions.

Seek information

Go forth and gather information, especially from people cleverer than you. Ideally clever people who disagree with you. Definitely from a diverse group. In house buying, this is what I tried to do by speaking to a range of different housing experts. In product management, I do this by discussing with a cross functional team of people who bring different knowledge and perspectives to the table.

Time heals

On the first day I discovered this issue, I was still set on proceeding as planned. By day two, I was wavering. I woke up one day 3 committed to withdrawing from the purchase unless I could secure a significant discount.

After writing things down, I like to sleep on it. I usually wake up with clarity. What a difference a day makes!

Those strong emotional reactions that come with cognitive dissonance start disappearing after a day or so. So if I think that might be something I am dealing with, I like to sleep on it if I can. Of course this is not always possible, but I have found that most decisions don’t need to be snap decisions.

Think out loud

I like to imagine choosing one of the options. I then try to confidently justify my decision, ideally by chatting it through with a friend or colleague. If I feel crappy about what I am saying or I struggle to answer their questions, that is a good indication that something isn’t quite right.

How will I feel about this in 10 months or 10 years?

Thinking long-term can help minimise the short-term and emotional factors in decisions. Losing 6 weeks and £1k of fees on a failed house purchase doesn’t seem like a big loss on a 10 month or 10 year Horizon. Forcing myself to think longer term can give me perspective.

Pre-mortems

Pre-mortems encourage us to think creatively about what could go wrong before it happens. This helps expose assumptions that bias might otherwise conceal. I like to do pre-mortems before starting work on new products or features.

Setting clear and explicit goals before starting

A good habit for product managers to get into is being explicit about the expected impact of a piece of work before you start. This helps mitigate confirmation bias. Forcing you to state upfront what good looks like makes it harder to go off and seek other data to justify decisions after the fact. Setting measurable goals like that can be really hard in practice, and is not a habit I have fully adopted yet for every decision. It is often very hard to quantify the impact of something – picking the right metrics and the right targets is not easy. That said, it’s something I am striving to get better at and do more often.