Research by behavioral economists has demonstrated people are naturally irrational. The challenge is to accept people as they are and then work rationally within our innate biases.
When your project has an issue that has already caused a cost overrun and needs more expenditure in the short term to potentially recover some of the losses later, you and your stakeholders may experience a bias called loss aversion. Most people will make risky decisions to avoid a loss, but are reluctant to make a decision of exactly equal to achieve an exactly equal gain. And most people also tend to prefer short-term gratification to long-term benefits.
Therefore our natural instinct is a strong bias towards not losing more money -- even if the short-term loss is significantly outweighed by a longer-term gain. The best antidote is a credible communication process that outlines the issues and risks, supported with additional reference materials such as the PMBOK® Guide.
Proximity bias is to prefer our own creations to other people's creations. This tendency is reinforced by what behavioral economists call the "IKEA Effect." The more labor we expend on a project, the more we love the result -- regardless of its quality.
Before your manager expends too much effort on her own solution the problem, you should communicate in a way that allows a jointly crafted solution to develop.
When communicating with senior stakeholders, try to help them resist these biases while working to avoid them yourself. Rather than provide your solution, offer a range of ideas that allows stakeholders to own the solution (with your help). Aim to shift their thinking to a viable benefits-focused solution.
How do you cope with biases among stakeholders?
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