Cognitive Bias in New Product Development


Here is an executive summary of an article called "Stuck in the Past: Why Mangers Persist With New Product Failures." The interesting text:

This explanation has nothing to do with involvement with the initial decision but instead points to the role of initial beliefs about the viability of the venture, independent of any involvement with the initial decision. Specifically, the authors suggest that when the manager is exposed to new, negative information, the manager distorts and weights this new information to conform to his or her initial positive beliefs. They refer to this behavior as "belief inertia distortion."

The study found that continued bad decisions were less about the inertia factor and more about cognitive filtering errors that caused participants to recast negative information.

The solution proposed by the authors is that decision makers at later stages of a project be decoupled from the earlier stages, but I question whether or not this can actually work. There is a minimum level of contextual understanding necessary to make a good decision, and moving people around so that decision makers are always fresh faces risks pulling in someone that doesn't understand the full context of the situation. Of course, on the other hand, fresh thinking can be extremely helpful. Being too close too a problem can cause blindness towards some solutions as thinking becomes linear and one dimensional.

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This is a tough problem for sure, and if I could solve it I would probably be running GE or Proctor and Gamble right now. All I can say is that it is important to be aware of the innate tendencies we have to bias information. Like the old G.I. Joe cartoons always said, "Now you know, and knowing is half the battle."

  • I may have missed something…

    What were the steps taken (in the study) to make the original forecast? In other words how sceintific was the original estimate?

    I think that is very important when judging the response to negative feedback. If you pull a number out of your hat and then ignore some short-term feedback that’s one thing.

    If you have a good estimate process and are undeterred by some bumps in the road that’s quite another.

    But there’s no denying that business people get trapped by “sunk costs” and that they religiously ignore disconfirming evidence.