Human brains mistakenly apply linear thinking to nonlinear phenomena.
Linear Bias in Practice
Managers mistakenly prioritize volume and costs over price, without realizing how much extra volume is needed to recuperate loss in profit.
There also exists nonlinear relationships between attitudes and behavior.
Four Types of Nonlinear Relationships
- Increasing gradually, then rising steeply
- Decreasing gradually, then dropping quickly
- Climbing quickly, then tapering off
- Falling sharply, then gradually
How to Limit the Pitfalls of Linear Bias
- Increase awareness of linear bias.
- Prioritize outcomes and not indicators and metrics that don’t have a linear relationship.
- Understand the type of nonlinearity one is dealing with in order to prevent overestimations and fall trap to bias.
- Use visualization tools to see how changes in variables can correspond to changes in other variables, especially when dealing with nonlinear relationships.
Linear bias is present everywhere, not just businesses. Thus, people need to be aware of pitfalls and apply disciplines to not fall for bias.