Basic Psychology Principles: Impacts For The Strategic PM

Strategy and Project Management demand a wide base of skills. It’s not just about strategy frameworks and PM approaches.

This post examines basic psychology principles. It surveys key formal principles, and more from seasoned “feet on the ground” in the business world. Finally, it looks at where these principles apply directly in practicing strategy and project management

Basic Psychology Principles Shape Where We Go and How We Get There

The Strategic PM blog looks at many different strategy frameworks and project management approaches. The blog typically explores the intersection of strategy and project management related to each of these frameworks and approaches.

I became curious about a broader approach as I read “Poor Charlie’s Almanack: The Wit & Wisdom of Charles T. Munger“. You may be familiar with Charlie Munger, famed investor and long time partner of Warren Buffett at Berkshire Hathaway. Charlie died late last year – just a month short of his 100 year birthday.

One of Charlie’s approaches as an investor was to draw on various schools of thought, including formal bodies of knowledge, such as psychology, sociology, economics, as well as mathematics and the hard sciences. Following his thinking, I thought I would explore the impact specifically of some basic psychology principles and how they impact strategy and project management.

This post first explores what Charlie termed ‘psychological tendencies’, which provide a lot of common sense ideas that Charlie used as an investor. Then I will broaden to look at more formal psychology principles and then explore how these are important in developing strategy and managing projects.

Let’s go right to Charlie Munger!

Charlie Munger Top 10 Psychological Tendencies

Charlie explained 25 tendencies with plenty of wit and humor in “Poor Charlie’s Almanack”. Here’s a brief summary of “my top 10” – arguably the most applicable to the strategic PM – of his list of psychological tendencies:

1. Liking/Loving Tendency – This is the inclination to ignore faults or flaws in someone or something one likes or loves. It emphasizes the impact of personal preferences on decision-making.
2. Doubt-Avoidance Tendency – People tend to avoid situations that involve uncertainty or doubt. This bias can lead individuals to make hasty decisions without thoroughly examining available information.
3. Kantian Fairness Tendency – Named after philosopher Immanuel Kant, this tendency refers to the inclination to act in a way that is considered fair or just. It highlights the role of a sense of fairness in decision-making.
4. Envy-Jealousy Tendency – Individuals may feel envious or jealous of others’ success or possessions. This bias can influence decision-making, leading to actions driven by these negative emotions.
5. Simple, Pain-Avoiding Psychological Denial – This involves avoiding or denying unpleasant realities or truths. Individuals may resort to psychological denial to escape discomfort, even if it hinders rational decision-making.
6. Excessive Self-Regard Tendency – People tend to overestimate their own abilities or attributes. This bias can lead to overconfidence and poor decision-making when one’s capabilities are not accurately assessed.
7. Deprival-Superreaction Tendency – This bias involves an exaggerated reaction to the fear of losing something. Individuals may react impulsively or irrationally due to the perceived threat of loss.
8. Contrast-Misreaction Tendency – This tendency involves reacting disproportionately to changes or shifts in situations. People may misjudge the significance of a change by comparing it to recent events, leading to biased decision-making.
9. Availability-Misweighing Tendency – Similar to Availability Bias, this involves giving disproportionate weight to information that is easily accessible. Munger emphasizes the importance of considering a broader range of information for better decision-making.
10. Authority-Misinfluence Tendency – People may be overly influenced by authority figures or those in positions of power. This bias can lead to uncritical acceptance of information or decisions without adequate scrutiny.

These tendencies highlight the complex and sometimes irrational nature of human decision-making. Charlie’s insights encourage us to be aware of these biases to make more informed choices – not just in investments, but in life, strategy, and project management.

A ‘Top 10’ Generalized List of Basic Psychology Principles

Now, departing from Charlie Munger, what are some more formal and generalized psychology principles that we can think about?

Here are ten general psychological principles that are widely recognized and studied:

1. Cognitive Dissonance – The discomfort experienced when holding conflicting beliefs or attitudes, often leading individuals to resolve the inconsistency through attitude change or justification.
2. Reciprocity – The social norm that encourages individuals to respond in kind to the actions of others. People tend to feel obligated to return favors or kindness.
3. Social Influence – The impact that the presence or actions of others can have on an individual’s behavior, attitudes, or decisions. This includes conformity, compliance, and obedience.
4. Habituation – The process of becoming accustomed – and perhaps a bit numb – to a stimulus over time, leading to a decreased response. Habituation plays a role in various aspects of learning and adaptation.
5. Selective Attention – The tendency to focus on certain aspects of the environment while ignoring others. This filtering process helps individuals manage the overwhelming amount of information in their surroundings.
6. Confirmation Bias – The inclination to seek, interpret, and remember information that confirms pre-existing beliefs, while ignoring or downplaying conflicting information.
7. Anchoring – The tendency to rely too heavily on the first piece of information encountered when making decisions. Subsequent information is often interpreted in relation to the initial “anchor.”
8. Loss Aversion – The psychological phenomenon where individuals prefer avoiding losses over acquiring equivalent gains. This bias can influence decision-making and risk-taking behavior.
9. Self-Serving Bias – The tendency to attribute positive events to one’s own character or abilities and negative events to external factors. It involves a biased perception of one’s own actions and outcomes.
10. Groupthink – The desire for harmony or conformity within a group may lead to poor decision-making as group members prioritize agreement over critical thinking.

These psychological principles are foundational to understanding human behavior and decision-making. It’s important to note that these norms are often interconnected, and individual experiences may vary based on context and personality factors.

Implications of Psychology Principles for Strategy

Psychological tendencies and principles are important and universal enough to be an important consideration in shaping organizational strategy. Understanding these factors is crucial for leaders and decision-makers to develop effective strategies, foster a positive organizational culture, and navigate challenges.

Here’s how some of these tendencies and principles apply to organizational strategy:

1. Confirmation Bias – Leaders may unconsciously seek information that confirms their existing beliefs about the market or competition. To counter this, organizations should actively encourage diverse perspectives and conduct thorough, unbiased analyses before making strategic decisions.
2. Reciprocity – Building positive relationships with stakeholders, customers, and employees can enhance reciprocity. Organizations that provide value and demonstrate goodwill are more likely to receive support and collaboration.
3. Social Influence – Understanding the influence of social dynamics within the organization is essential. Leaders should be aware of how groupthink (see #10 below) or conformity might impact decision-making. Encouraging open communication and diversity of thought can mitigate these risks.
4. Anchoring – Leaders should be cautious of anchoring biases when setting goals or making financial projections. Being aware of initial anchors and revisiting them with updated information can lead to more flexible and realistic strategic plans.
5. Loss Aversion – Organizations may be resistant to change due to a fear of potential losses. Leaders should communicate the benefits of strategic initiatives clearly and emphasize the positive outcomes to alleviate loss aversion concerns.
6. Self-Serving Bias – This is the tendency for individuals to attribute successes to their abilities and failures to external factors. Encouraging a culture of accountability and learning from mistakes can help counteract self-serving bias.
7. Cognitive Dissonance – When implementing new strategies, employees may experience unwanted stress and disturbance. Leaders should provide support, communicate rationale, and facilitate a smooth transition to minimize discomfort.
8. Habituation – Organizations need to adapt to changing environments. Leaders should recognize when habits or routines become barriers to innovation and strategically introduce changes to foster adaptability.
9. Selective Attention – When crafting communication strategies, leaders should consider the selective attention of stakeholders. Highlighting key messages and ensuring clarity can help ensure that important information is not overlooked.
10. Groupthink -Organizations should foster a culture that encourages independent thinking and constructive dissent. Establishing diverse teams and soliciting input from various perspectives can mitigate the risks of groupthink.

Strategies can be enhanced by integrating an understanding of these psychological tendencies and principles. This can enable leaders to make more informed decisions, enhance collaboration, and create a culture that promotes innovation and adaptability.

Recognizing and addressing these biases is an ongoing process that contributes to the overall robustness and effectiveness of organizational strategies.

Implications of Psychology Principles for Project Management

Psychological tendencies and principles play a crucial role in project management, influencing how teams collaborate, make decisions, and respond to challenges.

Here’s how some of these tendencies and principles apply to project management:

1. Confirmation Bias – Project managers may unconsciously seek information that confirms their initial project assumptions. To mitigate this, project teams should actively seek out and consider alternative viewpoints, conduct thorough risk assessments, and regularly review project assumptions.
2. Reciprocity – Building positive relationships with team members and stakeholders fosters a sense of reciprocity. Teams that collaborate effectively, communicate openly, and support each other are likely to see increased cooperation and commitment to project goals.
3. Social Influence – Understanding the dynamics of social influence within a project team is crucial. Project managers should be aware of potential conformity pressures and encourage team members to express diverse perspectives. This can lead to more robust decision-making.
4. Anchoring – Setting realistic project goals and timelines is essential. Project managers should be cautious of anchoring biases when estimating project durations and costs, and regularly reassess and adjust these anchors based on actual progress.
5. Loss Aversion – Resistance to changes within a project may be rooted in the fear of potential losses. Project managers should communicate the benefits of changes, involve team members in decision-making, and emphasize positive outcomes to alleviate concerns.
6. Self-Serving Bias – Team members might attribute project successes to their own efforts and failures to external factors. Project managers should foster a culture of accountability, recognizing individual and team contributions while learning from mistakes.
7. Cognitive Dissonance – During a project, team members might experience cognitive dissonance when faced with unexpected challenges. Project managers can help by providing support, clarifying goals, and ensuring that team members understand the rationale behind project decisions.
8. Habituation – Project teams should be vigilant against falling into unproductive habits or routines. Project managers can encourage innovation and adaptability by periodically reassessing processes and introducing changes to enhance efficiency.
9. Selective Attention – Project managers should be aware of selective attention when communicating important project information. Clear and concise communication, highlighting critical updates, ensures that team members focus on key aspects of the project.
10. Groupthink – Groupthink can hinder creative problem-solving within a project team. Project managers should actively encourage diverse perspectives, create an environment where dissenting opinions are valued, and foster open communication.

By recognizing and addressing these psychological tendencies and principles, project managers can create a more effective and resilient project management environment. Cultivating a team culture that is aware of these biases and encourages learning from experiences contributes to successful project outcomes.

Conclusion and Further Resources

This post was based on the premise that Strategy and Project Management demand a wide base of skills. It’s not just about strategy frameworks and PM approaches.

The post examined basic psychology principles. It surveyed key formal principles, and more from seasoned “feet on the ground” in the business world. Finally, it looked at where these principles apply directly in strategy and project management

Here is a short and excellent video by Robert Cialdini on basic applied psychology principles: