The Endowment Effect

Picture this…

You have a friend who buys and sells antique and collectible cars. A c

ar that they purchased 20 years ago for $5,000 dollars is now worth $100,000. Over the past two decades, your friend has invested time and money into the car. As you can imagine, this friend would be unwilling to part with their car for the current market price ($100,000), but what is more interesting is that they would also be unwilling to buy any additional cars at this price! What this means is that they have given their car an added level of value above and beyond the price of exactly the same car in the open market.

Welcome to the Endowment Effect.

The Endowment Effect is a psychological bias in which individuals assign more value to something simply because they feel a sense of ownership towards it. It is strongly connected to our fear of loss and can result in actions that are not always rational.

Research Question 1
At Clarity Recruitment, we were curious. Would the Endowment Effect translate into the world of accounting and finance hiring?

Our Research We interviewed 50 senior managers, directors, VPs and C-Suite members from financial and accounting firms in the Greater Toronto Area. We took care to capture data from various industries and levels. Each respondent was presented with scenario-based survey questions which focused on different hiring and staffing challenges. Scenario 1 Our finance and accounting hiring authorities were told that an employee they had hired was thinking of leaving. The hiring authority was then offered two choices:

a) Offer your current employee an incentive to stay (monetary, perks, benefits, promises,) or; b) Hire a new employee with exactly the same skills, salary requirements and intangibles (with no transaction costs).

 

The Results:

 

Respondents were given a scenario in which they were asked whether they would incentivize (pay more) to keep an employee whom they had hired versus hiring a new employee with exactly the same skills and intangibles.

76% of respondents indicated that they would incentivize their hire to keep them.

This result, given the skill and intangible similarity of the two options, indicates an irrational willingness to pay in excess of what the market would demand.

Scenario 2
When a different set of respondents were asked to advise a friend about the same hiring decision (rather than making it themselves about their own hire), these numbers were reversed.

 

The Results:

 

64% of respondents chose to replace the outgoing employee rather than incentivize him/her to stay.

In other words, the lack of attachment to the existing employee allowed the advisor to make the more rational, economically relevant decision. These findings match the results of other studies and demonstrate that the Endowment Effect is a psychological bias present in hiring and recruiting.

Why the Endowment Effect Matters When You’re Hiring
When a hiring manager’s willingness to pay/incentivize an employee rises (or when what is required for them  to accept another individual in the role increases beyond what is necessary for the position) there are a number  of  implications:

Companies overpay or overinvest in current assets.

When a team member resigns, managers often make a move to counter-offer in order to retain their employee. When made using rational economic thinking, a counter-offer can be a legitimate and sometimes valuable move. However, in light of psychological research on inherent biases - particularly after losing someone that is a part of “your” team - chances are that psychological biases will negatively affect your decisions. In this specific case, you are negotiating from a psychological disadvantage, which is not really a negotiation at all. This means you are giving money away in an effort to regain mental control and soothe a psychological pain point. What’s more interesting is that the closer you are to that person, the more likely you are to escalate the counter offer irrationally, offering more than if you weren’t as close.

KEY LEARNING: Stop overpaying for things you don’t need. By understanding the Endowment Effect and how it affects you, you can make better decisions about when to counter-offer and when to simply let team members go. Companies expand role requirements beyond what the market will provide at a given salary

and search cost.

This type of over-hire can happen after you fall in love with a candidate and get your heart broken.

It looks like this… When recruiting for a new hire you meet a candidate who has all of the technical skills, interpersonal skills and intangibles you needed (or hoped for) and you are ready to get hitched…or hire them. You quickly park the other candidates still in the running as you wait to meet your candidate at the employment altar. The big day comes for the final interview and you get the dreaded call, “Sorry Doug, I’ve taken another opportunity and won’t be coming today.”  Your heart is broken and you pine for the person, benchmarking everyone you’ve met against him or her. Not a single one stacks up.  “I don’t need those other people, I need the person I wanted.” The other fully qualified suitors no longer seem like realistic options as you now think you need something more, even while the marketplace snaps up the others.  The position stays open for 2, 3,6, 8 months and your other team members, now overworked, begin leaving.

KEY LEARNING: You’ve put yourself in this mess and you could have avoided this long, cold winter of discontent if you only understood your own biases.  Companies will over-hire in an effort to replace an individual rather than hiring the right person for the role.

A team member you think is fantastic has outgrown her role and is moving to greener pastures. With no promotion to offer her, she is leaving with your blessing. As large as the loss may seem, the truth is that your team member wasn’t always the amazing, promotion-ready employee that she is now. She initially struggled and experienced the ups and downs of a new role when you brought her in, as most hires do. It took her a year to really figure out her role and then another 6 months to start driving the kind of outcomes that everyone had come to love her for. These last 12 months have been fantastic and you want to keep the good times rolling.  You just need to find another Manager of Reporting like her. One who can lead and empower and still dig into the nitty gritty. That’s what you need right? Wrong. Instead, you need the person who showed up 18 months ago. The employee you had for the past 12 months was overqualified, with too much horsepower. She was most likely bored, under-worked and was actively looking for a job. Bringing in a new hire like her, with her current capabilities, will inevitably lead to a repeat in the situation, incur the myriad costs of bad hires and lead to a lack of confidence in the hiring process and hiring manager.

KEY LEARNING: Our fundamental biases blind us to the objective capabilities and requirements necessary to effectively fill a role. By understanding these biases we can avoid making bad hires and better match employees with roles and maximize organizational efficiency.

What You Can Do About the Endowment Effect?
To help find a solution for the Endowment Effect, our study also tested whether the inclusion of a comparative metric (an annual evaluation or performance review from HR) could reduce this inherent bias by focusing on rational market factors.

We asked our hiring authorities about internally promoting an employee whom they had hired, versus one they had not hired, who had been given better overall scores on an annual review from HR (or other trusted scoring body).

• 66% of respondents chose to promote the employee they had not hired. The key consideration? When we asked them why, they cited the higher scores on the HR performance review as the difference maker. - This result indicates that the inclusion of an annual review injects a degree of objectivity into

the process and helps diminish the Endowment Effect.

•34% of respondents still chose to promote the employee they had hired and who had the lower performance scores.

- This result shows the enduring power of the Endowment Effect, as 34% still chose to promote the employee they had hired, even though he/she had the lower set of scores.

Key Takeaways
The Endowment Effect can negatively impact hiring decisions and processes. 3 Use of an annual review from HR, or other trusted scoring body, can reduce the Endowment Effect. 3 Further research must be done into causes of the Endowment Effect as one third of respondents still indicated bias in spite of the addition of an annual review.


Dynamic Decision-Making

Most people think that there isn’t any science that we can apply to hiring. Too often we hear that hiring is a black box, and that somehow our psyche and gut will lead us to the right decision.

What people don’t realize is that there is a science that examines how we make decisions.  While we look for every edge in managing other areas of risk in our businesses, we remain woefully ignorant of the potential of behavioral science to improve our hiring decisions.

Your Gut Misleads You  

We all perceive ourselves as rational.  We think we make objective decisions and when we don’t, we think we can put our finger on the reasons why (“I was just in a bad mood today”).  But the reality is that we are anything but rational.  We are heavily influenced by our environment, our feelings, our thoughts, our fears, and our past experiences.  But knowing that we are irrational is not enough.  Knowing how, when, and what we can do about these irrationalities is why we research.

So we asked ourselves:

Can the principles of behavioral science be applied to the hiring process, or do they only work in a lab? 

And if they can be applied, how does that inform our decision-making and help our clients?  For example, imagine the scenario below.

House Money Effect:

You’re in Las Vegas and you pass a slot machine. Arbitrarily, you insert a quarter and pull the handle. Astonishingly, money begins to pour into the trough below. Buoyed by your success, you decide to play again…and again, even though you’re not typically much of a gambler.

Now go back in time and reverse the outcome of that handle pull – you lose. Would you play again? Would you keep dropping quarters, hoping to break even with the house, or would you take your lumps and move on to another game? 

The first scenario, where we “struck it rich” reflects the tendency for human beings to increase their willingness to gamble on an uncertain outcome after experiencing prior wins. It’s called the “house money effect.”

The second scenario splits the scientific literature.  Some research tells us that when we experience a loss, we are less likely to insert that second quarter, experiencing a kind of “shell shock”, while other research tells us that we may try to “break even” and take more risks to square up with the house. And while either option can be justified, the idea has profound implications for the hiring process.

 We wondered, what would happen if we explored the concept of the “house money effect,” and its impacts on hiring?

We compiled over 200 hiring authorities. We asked participants to imagine that either they (individually) or their company (as a whole) had just finished a very successful, or a very tough quarter.

 

 

 

 

 

 

 

 

  • The quarter included a major success or disappointment on their most recent project.
  • Participants were then asked to weigh in on a hiring decision and shown the profiles of two imaginary candidates applying for the same mid-level role.
  • One candidate was portrayed as a steadier and more consistent performer looking for a role that offered stability, while the other was portrayed as a bit more of a wildcard with higher upside, but also higher risk.
  • Participants were provided with a brief description of each candidate, as well as education and employment histories. Both were viewed as equally qualified for the role (we’re putting together a white paper that details the study more thoroughly, but for the sake of brevity and the fact that you’re likely reading this while you eat your lunch, I’ll offer you the highlights).

The Results:

The behavioral team that leads the charge on our research is peering anxiously over my shoulder as I type this (ready to explain - in agonizing depth - the difference between p-values and confidence intervals or any other science that I may gloss over).  My goal is to give you the key takeaways and insights that will help us all hire better.

 

 

 

 

 

 

 

 

  • Those who had experienced wins previously, either individually or as an organization, were significantly more likely to select the riskier candidate than those who had experienced a previous loss.
  • This result shows that the “house money effect” does impact hiring decisions. When we’ve had a win, we tend to favour risky decisions.
  • Those who had experienced a previous loss, either individually or as an organization, were significantly more likely to select the more stable candidate than those who had experienced a previous win. We’re calling this response the “shell shock effect.”
  • The result above shows that a prior loss, even if only imagined, can impact a hiring agent’s decision-making process.

Key Takeaways

If your company, or a hiring agent has experienced a prior win, they are more likely to make riskier hiring decisions. In contrast, if your company or hiring agent has experienced a prior loss, they are more likely to make a decision that minimizes risk.

Unfortunately, by minimizing the risk, they also potentially minimize the upside (higher risk/higher reward candidate is passed over).

Interestingly, by depending on your gut, you could be selecting the candidate that is the opposite of what your team or organization needs. 

This happens whether it’s a steady hand, or a wildcard approach.  By going with your intuition you potentially sabotage the process.

This is why we research. We want to know when psychological bias is rearing its head and what to do about it.  So ask yourself:

 

 

 

 

 

 

  • Did I recently hit a home run relative to company/team expectations, or am I coming out of a bad period?
  • Is my firm coming off of a bad week, month, or quarter?
  • Am I being overly cautious due to a recent loss or failure? Or am I overestimating my skills or the size of our opportunities because of a recent win?

Most importantly, ask yourself -  If my victory or loss were reversed, would l still make the same decision and weigh things the same way? 

By asking yourself what you would do if you or your team had previously experienced a different outcome, you can begin to regain control over the psychological effects that may be hijacking your decision-making.

 


FUNDAMENTAL ATTRIBUTION BIAS

A child is wailing two rows down from you on an overcrowded flight to Montreal.  You glance over, wonder what the commotion is about and resolve to buy the overpriced earplugs (ok, they’re really headphones) that the flight attendant is proffering. Maybe, just maybe you might be able to get some sleep.  Ten minutes later the wailing has intensified to banshee like levels. Why doesn’t the father do something?  If you were the parent you would…

How many times have we had thoughts such as these?   We see a situation, make a snap judgement and attach blame based on our pre-conceived idea of some personal lack of character or ability. What’s interesting, is that if we were in the same situation we would consider the external circumstances. Our child is crying because our flight got delayed three times, or we had to switch planes unexpectedly because of a malfunction, or little Timmy is teething.  

This tendency to place emphasis on internal characteristics (personality) to explain someone else's behavior, rather than considering the situation's external factors, is the Fundamental Attribution Bias.

You:  The Leader
You signed up to be the leader and you now understand that failures are a result of multiple factors. However, you may be alone in your thinking because of the information you have access to.  As the leader, you have an opportunity to define how your team analyzes failures to extract maximum learning.  You can teach them to interrogate reality and resist the temptation to point at a single data point or single person.  Create a culture that avoids laying blame and instead focus on one that accurately tries to describe reality.

Author Edwin Friedman once wrote, “In any situation, the person who can most accurately describe reality without laying blame will emerge as the leader, whether designated or not.”

Now here is where it gets interesting:  The leader who creates this type of culture is also creating an invisible force field that protects against "The Fundamental Attribution Bias" as those around you become more likely to look at all factors which contributed to any failure or defect. This team will also craft better solutions and workarounds to prevent future failures.  How about that?

Leadership doesn't feel so lonely all of a sudden.

Why the Attribution Effect Matters on a Day to Day Basis

  • Consider external factors before judging a co-worker’s actions or words
  • Create work environments where external factors are controlled, or can, at least, be moderated and accounted for
  • Ask questions to understand motivation
  • Position information based on how the person needs to receive it – consider communication styles
  • When managing a team explain why a significant task or action is necessary to help your team understand why it needs to be done

Clients: Why This Matters When You’re Hiring

You look at a candidate’s resume and notice that he took a lower paying job and a lesser title in his most recent role. You are about to put the resume on the discard pile and then stop – everything else about the candidate is ticking all the right boxes, is it worth the interview?

  • Understand that we see situations from the outside
  • Consider interviewing the candidate – there might be a reason for what he/she did – skill set gains, industry experience, or the chance to work with a mentor
  • Ask questions during the interview that are behavioral based to determine a candidate’s problem solving process
  • Don’t hesitate to ask clarifying questions to understand a candidate’s actions and motivation

 Candidates: Why This Matters in an Interview

 

 

 

 

 

 

 

 

 

 

 

 

  • Because we (this includes employers) have a tendency to make judgements based on thin slices of data, it’s imperative to identify where employers might see gaps in our skill set and prepare accordingly
  • Prepare success stories to illustrate problem solving capabilities
  • Use the STAR method to craft a compelling story – state the situation that arose, the task to be handled, the action that you took in response and the results that were achieved
  • Use outcome focused language to describe accomplishments
  • Make sure to end your interview strongly by reiterating your interest and asking if there is anything that needs clarifying
  • Never speak badly about a past employer – the Attribution Effect means that people can attribute the issue to poor judgement or a gap on your part, rather than the situation

Key Takeaways

Before you judge a person’s actions, words or resume consider the Attribution Effect. Understand that we have a tendency to perceive someone’s actions as a reflection of their personality, rather than external circumstances. In contrast, we are much more likely to look at situational factors when it comes to ourselves. This can make us rush to judgement and discard a worthy candidate, or become disenchanted with a member of our team. Ultimately, by understanding how the Attribution Effect can colour our perception we can become better managers, team members and hiring agents - and that is well worth the investment of time.

Want to read more about the Attribution Effect? Check out this Wikipedia article.

Your Next Step

No one should walk the job search or hiring road alone. At Clarity Recruitment we help others realize their success through a process that marries proprietary technology with unwavering commitment.  Contact us today to take control of your career, or to partner with us to hire well.

Clarity Recruitment, connecting exceptional people with remarkable companies.

 

 

 


SOCIAL LOAFING

When you build your all-star team for your next project, you will inevitably try to grab as many superstar performers from around the organization as you can.  If one accounting whiz is good, two are better, and the same is true for your managers and strategists, right?  Why not have a second set of eyes on something?  It seems obvious that your team will benefit from the addition of these skill sets.  It’s why scouts and headhunters scour the globe looking for talent - to populate your teams with as many performers as possible.   1 + 1 = 2.  There’s no debate.  What could go wrong?

Well, what if 1 + 1 didn’t equal 2?  

What if under certain circumstances it equaled less than that and, more importantly, how would you explain it when that deficit relates to your team’s performance?

After you were done trying to explain why you don't have 2 units of performance output (“spontaneous innovation-fueling synergistic combustion,” maybe), you would most likely want to know how such a seemingly fundamental idea could lead you astray.  Why would two economic agents, acting together, not combine their skills, resources, and capabilities to maximize their efforts?  What makes the difference between Sherlock Holmes and Watson and Ray and Lloyd from Dumb and Dumber?

This is where social psychology comes in.  But first, a thought experiment:

Think back to your high school or university days and remember one of the many moments when your teacher uttered the words “group project” when reading over the course syllabus.  Depending on your preferences, your reaction to this memory will evoke different emotional responses, likely ranging from being overwhelmed by the addition of an extra four- person’s-worth of work to your schedule to being overjoyed at the extra TV time available in the coming semester (you know who you are!).

Now think back to your group interactions and the division of labor among the team.  Think about the natural ebbs and flows of the breaking up and doling out of different tasks and responsibilities throughout various phases of the assignment.  Some students stepped up and shouldered the load, often claiming that they were “good at” or “talented in” the area, while others said nothing or waited for what was left.  Some of this was explicit, particularly early on in the project, and some was implied or “just happened”, particularly as the project came to an end.  When all was said and done, the final project handed in, there was almost always a wide spectrum of perspectives ranging from “Wow, did I ever do a lot of work on that assignment” to “Whew, hopefully they did a good job on that one!  Wasn’t Breaking Bad great this season?”

What is most interesting is that social psychological research has shown that these perspectives develop regardless of our initial joy or disdain for group projects.   It’s not just straight-A students who hustle and slackers who loaf. We all have the capability to do too much as well as too little, depending on the project and often we’re unsure how this happened.

Again, this effect can happen regardless of how talented or engaged you feel and most often without you even knowing it!  We can all be hard-workers on one project, putting our best forward for the good of the team, and loafers on the next, coasting off the accomplishments of others.  This is the social loafing phenomenon and understanding it can help you maximize your team-building capabilities.

Welcome to Social Loafing: 

No matter who you are, recent studies have shown that you engage in a complex set of social calculations each and every time you are in a group.  These calculations are based on social comparisons with who you’re with and are set up to maximize your abilities in any given set of circumstances. These dynamics function in both conscious and subconscious ways, guiding our behaviour without our having the faintest idea.

Social loafing is a phenomenon that causes people to adjust their effort based on their perception of their teammate's capability.   If they think their teammate has lower capability, they will try harder.  This perception can be as overt as knowing, believing, and having proof that they are more capable than their teammate or as subtle and abstract as connecting clothing, behaviour or grammar with ability.  This is the positive side of the social loafing coin known as social facilitation or social striving - when we are made better through our perceptions of being the strongest in the group.

Unfortunately, it has also been shown that this compensation effect works the other way as well.  When we perceive that we are the lesser-skilled individual in an interaction, we automatically downgrade our effort and performance.  We conserve our energy and capability (whether we like it or not) to use for other tasks.  This is social loafing.

Now this wouldn’t be a problem if we could allocate our tasks to individually skilled team members, but it is precisely when collaboration is required most, in joined team tasks, that our psychological mechanisms may start to work against us.

Though much about this phenomenon is still be discovered, this much is clear; ask two people with similar skillsets to collaborate on a task and a complex series of calculations will lead to both overcompensation and social loafing.

1 + 1 will equal whatever the overcompensating team member is able to muster, but if they can easily do the work of 2 people, then why have them on that team in the first place?  Why not let them work alone?  And what of the social loafer?

As a manager with knowledge about this phenomenon, ask yourself these questions:

  • How will an individual who is constantly overcompensating and striving to overcome the deficits of their teammates will feel?
  • Will your top performers burn out faster?
  • Will your top performers become disgruntled as credit is shared throughout the team, their outsized performances washed away?

Imagine the complications and dynamic effects if these emotions and tensions cannot be verbalized because these binding perceptions are implicit, subconscious, and unbeknownst to these high performers.

Ask yourself what will happen to the skills and capabilities of the loafers?  Without even knowing it, these individuals will lose their edge, sell themselves short, and reduce their capabilities.  They’ll feel like they haven’t really been challenged and look for greater challenges elsewhere, challenges that they are most likely unprepared for.   These challenges will likely be awarded by an unaware manager given the consistent success of the loafer and their team (“look at how well they did on that last project!”).  This house of cards will surely collapse when the loafer’ skills do not meet the challenge for which they were never really prepared.

There will be more negative implications for team dynamics, as loafers will most likely be unable to fully understand why their disgruntled team member has become increasingly ornery and difficult to work with.  It is worth restating that though some of this will be explicit, team members will see and consciously experience some of these emotional side effects, other elements will operate subconsciously and be triggered by things that are outside of their control.

So what do you do?  How can you mediate these effects and build high performing teams?

  • Identify unique talents
  • Create time/task-specific partnerships and teams
  • Incorporate teaching into team processes

One of the best ways to avoid these problems is to identify an individual’s unique skills and emphasize their domain-specific role on each individual project.  By having a “researcher specialist”, a “numbers guru”, a “team leader”, and a “write-up whiz”, four accountants can become a dynamic band of specialists, each contributing their 1 unit to the output equation.  This focus on specific and unique individual skills or components has been shown to mitigate the effects of social loafing*.  Even if two individuals are stronger at researching than at writing, by separating and emphasizing their unique tasks, you will be able to eliminate the social comparisons that are so costly to overall performance.

An interesting way to use the social facilitation phenomenon in your favor is to create time-constrained partnerships.  In this model, individuals will be responsible for their area of the project but collaborate for discrete periods of time with either a “catalyst” - one who knows less than they do about the specific area of the project and is responsible for either learning about, integrating or managing the project -  or a “specialist contributor” who knows more about a specific area and is responsible for contributing or providing special support to your teammate.  Working with the “integrator,” or less specifically-capable individual, will increase the output and performance of your employee, while interacting with a “specialist contributor” will have two effects.  Though there could be an initial drop in output (the social loafing effect), the specialist will peak their knowledge while interacting with your employee and the specialists absence after their interaction will kick your employee into a socially facilitated overdrive as they bounce back to being the sole contributor but with new, heightened expectations.  The addition of either a less or more capable contributor for a short period of time can be a useful strategy when you need to add a vital psychological kick to your team project.

You can also use social facilitation to improve your own skills by incorporating teaching or mentoring into your work processes.  Rather than dragging around extra weight as in a similarly-skilled team setting, teaching will provide an opportunity to facilitate and elevate your own skills while allowing those under your tutelage to develop their skills at a pace the is more appropriate to their capabilities.

The social loafing and facilitation phenomena can also be used as a way to evaluate the talent of your team when making staffing or team decisions.  By keeping a close eye on who is doing the bulk of the work, you can begin to develop a sense of how both the implicit and explicit skills, as well as the team’s beliefs about these skills, are organized.  Keeping tabs on your employee’s output through regular meetings, coupled with knowledge of the social loafing phenomenon, can also help you to understand who is truly delivering for your team

Social loafing and facilitation are powerful psychological phenomena that when properly understood can be used to dramatically improve the efficiency and performance of your high-performing teams.  If you have any questions about social loafing or any other psychological or social psychological ideas and their effects on your team, please feel free to contact Clarity.

Your Next Step

No one should walk the job search or hiring road alone. At Clarity Recruitment we help others realize their success through a process that marries proprietary technology with unwavering commitment.  Contact us today to take control of your career, or to partner with us to hire well.

Clarity Recruitment, connecting exceptional people with remarkable companies.


CHOOSING VS REJECTING

When we’re preparing to hire, it can feel a bit like going into battle.  We create a plan, gather our forces and hopefully move towards a successful outcome.  But like any battle, we can have resounding triumphs and stunning, costly miscalculations (think about having to go back to the drawing board to hire a Director of Finance after a six month period).

So how do we ensure we succeed in the hiring trenches? Here are our hiring tips.

What’s the Connection to Hiring?

Like most of us who are tasked with hiring finance and accounting staff, we assume that we are objective in the process. After all, what could be more black and white than comparing two resumes. And although we may question the truth of some of the ‘facts’ on a resume, we hardly ever question our own objectivity.

Here’s the thing – we think we’re in a place where we can make an objective, calculated and sound decision, but there’s an enemy behind our hiring lines and it’s the psychology of decision making.

Specifically

  • Situational factors and our lack of knowledge about their effects can sabotage the process
  • We can overvalue positive or negative traits depending on how we frame the decision (i.e.are we selecting a candidate or rejecting a candidate based on a specific trait like designation?  More on this later).
  • We are substantially impacted by how someone presents options to us

So think about it. We believe we understand the hiring process. We have the best of intentions to apply objective criteria to reach a sound decision. Instead, our own psychology is potentially sabotaging the outcome.  That’s something worth understanding because, at the end of the day we need to be able to show success in the form of a great hire.

To a certain extent hiring anyone is a bit of a gamble. We do what we can to mitigate risk, but at the end of it all, the candidate still has to deliver.  What’s most interesting is that we rarely question our own objectivity in the hiring process. We gather resumes, rank candidates, sit down to make our next round of cuts (or selections) and find ourselves re-evaluating our earlier decision. Top candidates move down the list and lower ranked possibilities move up.  We assume that this happened because our decision making process and criteria were honed.

But what if we were wrong? What if this assumption could be the one that sends us back to the finance hiring drawing board 3 months later?

You Have to Know When to Hold ‘Em

When Nobel Prize winner Daniel Kahneman set out to understand decision making, he thought he would approach the kind of people who constantly weighed the odds before taking action – gamblers. What he found surprised him. Even gamblers, who should be well versed in calculation and risk, changed their decisions dramatically based on whether the gambles were framed as losses or gains. It didn’t matter that either choice offered the same objective value, simply by framing them differently, researchers could greatly affect people’s choices.

What Does This Mean to Hiring?

Research has shown that the way options are presented can have a major impact on which option we choose. Of particular importance is framing a decision as ‘choosing’ or ‘rejecting’.  We can overvalue positive traits in the choosing mindset, or overvalue negative traits in the rejecting mindset.

What?

Let us explain.

Consider our resume example from our introduction.  If we are culling resumes in the first round (rejecting) we might bypass a candidate with many positive traits because we are in the mind frame of rejecting. This rejecting point of view causes us to focus on the candidate’s negative traits (not the right number of years of experience, or the lack of a specific technical skill). We might by-pass a candidate who could be exceptional. Of course, that same candidate, if we were in a choosing mind frame, might make the cut because they have the industry experience we’re looking for.  Yikes!

Since GI Joe wisely insisted that “knowing was half the battle” we knew at Clarity Labs there had to be a way that someone involved in a hiring scenario could circumvent this psychological grenade to make better decisions.

Let's explore the 3 things you can do to take charge of the hiring process and reduce your risk of bringing the wrong candidate on board.

Step 1: Know What You’re Trying to Accomplish

Decide which approach – make the word ‘approach’ a link to Alex’s white paper (choosing or rejecting) you need to use.  For example, are you hiring for a role that is particularly high risk? In that case, you may want a stable performer. Using a rejection strategy in which candidates are “rejected” based on negative criteria may be the preferred approach as it will eliminate candidates with more “at risk” traits.  In contrast, if the role needs someone who can spur growth or challenge the status quo, a selection strategy will favour those with positive traits who support the company’s objectives.

Step 2: Know Your Criteria

Establish your criteria in advance. Craft a scorecard based on it and give it to those involved in the hiring process. Here’s why.  Research has shown that we mold information to justify the decisions that we make. Given that we know people become attached to their candidate of choice as the process moves along (the Endowment Effect – make this a link to Is Your Judgement Clouded), it is crucial to establish and stick to a set of predetermined criteria.

Step 3: Understand Confidence

Does this sound familiar? You like a particular candidate and you want to hire them.  You’ve taken your time, vetted him/her carefully and feel confident in your decision. After all, look at all the upsides he/she has.  Time to make an offer right? Not quite yet.

Interestingly, when we use a choosing strategy, a strategy that favours positive traits, we will have more confidence in our decision than if we used a rejection strategy.  This has particular implications if different members of the team are advocating for different candidates. Consider how each member came to their decision. Understanding if a choosing or rejecting strategy was used will go a long way to mitigating biased overconfidence or under-confidence in selecting a candidate.

So how do we move forwards toward a successful hiring outcome? We take the time to understand what we are trying to accomplish and what approach offers the greatest chance of success. We establish objective criteria and a scorecard for everyone to use.  And we remember that the process we select of choosing or rejecting can lead to overconfidence/under-confidence in our decision.  If we do so, then we’re well on our way to adding a top performer to our team who can be a difference maker for our organization.

Your Next Step

No one should walk the job search or hiring road alone. At Clarity Recruitment we help others realize their success through a process that marries proprietary technology with unwavering commitment.  Contact us today to take control of your career, or to partner with us to hire well.

Clarity Recruitment, connecting exceptional people with remarkable companies.


THE PEAK-END RULE

Remember all those great movies that caused you to sit up and really take notice?  Those films that you couldn't wait to watch over again and had you raving to your friends the next day?  These movies always had a few memorable scenes that grabbed your attention and propelled you to a climactically-explosive ending.  You can't remember how long they were, who exactly was in them, or all the specifics of the plots, but you know you loved them!  This feeling, in essence, is the Peak-End Rule.

To be a little more scientific (we enjoy that) people have a tendency to judge experiences based on how they were at their most intense point(s), or peak, and how they were at their end.  Of even greater interest is that neither the duration of the experience, nor its overall pleasantness or unpleasantness seem to impact the final evaluation as much as the peaks and end.

Think about it – this is powerful knowledge that can help you land the job you want, or if you’re on the hiring end of things, prevent you from getting swayed by a candidate’s impressive interview when the focus should be on objective data.

Candidates: Hitting a Home Run Interview

Using the peak-end rule in your finance and accounting interview can definitely give you an edge over the competition.  Keep the following in mind:

  • Employers are invested in the hiring process, but they never remember the whole interview.
  • What they do remember are the peaks and the finish – so plan a few peaks.
  • For example, during the interview offer a particularly relevant story that illustrates a strength of yours and tie it into the company’s goals.
  • Make sure your voice becomes particularly animated and that your body language supports that you are saying something worth paying attention to.
  • Make sure the end of the interview is powerful - don’t forget to ask for the job.

Candidates: Crafting an A-Team Resume

  • The peak-end rule can be incorporated into a solid resume strategy.
  • For example, include a number of notable accomplishments under each of your roles.
  • Think in snapshots and format your resume accordingly.
  • Use active, outcome focused language.
  • Avoid monotonous word choice.

Employers: Using the Peak-End Rule When You Hire

You leave an interview feeling an overall great vibe about the candidate.

You keep coming back to one or two points that you’re sure will wow your team and convince superiors about your great candidate/hire.  Your team and superiors, who have only seen the resume, aren't sure that these few points and your general aura/feel are as important as you think.  You sense pushback. Who is right?

Well, YOU were there in the interview, so you must have the upper hand in evaluating this candidate?  Right? Maybe.  So what can you - as the client - do?

  • Be aware of the peaks and the end of the interview.
  • Know which peaks matter and which don't - evaluate how important these factors are against standardized, objective metrics.
  • Candidates who finish stronger will be viewed as stronger.
  • If the role requires the candidate to have strong closing skills, for example, then an ability to have an impressive finish should be weighted when considering candidate suitability.  If not, then consider other metrics when making a decision.
  • Be wary of using the duration of an interview as a proxy for how well it went.  Using objective evaluation metrics avoid letting common heuristics like the duration of the interview and the peak-end rule to bias your interviewing process.

If you’re writing your resume or plotting the flow of your upcoming interview, be sure to plan a few peaks and finish strong.  Remember to think in snapshots and to highlight your accomplishments.  If you’re hiring, on the other hand, keep in mind that you can be swayed by a fantastic interview. In response, try to develop some key metrics that can keep you on the objective track.  Data should drive your decision making process if possible. Knowledge of how the peak-end rule functions offers both candidates and employers advantages in the hiring process.

Want to read more about the peak-end rule? Check out what Wikipedia has to say.

Your Next Step

No one should walk the job search or hiring road alone. At Clarity Recruitment we help others realize their success through a process that marries proprietary technology with unwavering commitment.  Contact us today to take control of your career, or to partner with us to hire well.

Clarity Recruitment, connecting exceptional people with remarkable companies.


THE AMBIGUITY EFFECT

Your friend comes to you with a dilemma....

 

She’s considering two different sales roles. One is a commission based role, with high, lucrative potential and the other is a guaranteed salaried position.  After crunching the numbers carefully (hey that’s what you do) it’s clear that the commission-based option is the winner, with the greatest chance of making your friend some serious money.

What happens next perplexes you.

Your friend says that she’s going to take the guaranteed salary role, over what she calls the ‘up in the air’ commission based position. She’s never really shown signs of being risk adverse before, so what’s happened?

What is the Ambiguity Effect?

In short, your friend has shown our very real, human tendency to try and mitigate risk by avoiding situations where we can’t predict the outcome. It’s why people choose bonds over stocks, or a fixed mortgage over a variable rate. It’s called the ambiguity effect and knowing about it can change how we structure our resumes and how we hire.

Candidates:  The Ambiguity Effect and Your Resume

Since we know that people avoid choices where an outcome is not predictable, a noticeable gap in your resume is the proverbial red flag.  This can particularly sink your job search ship if your competition, in the form of other hungry candidates, have resumes that are complete.  Consider the following:

  • Gaps in resumes can be perceived as inconsistencies.
  • Even if the item you’re contemplating leaving out isn’t impressive, it’s better to leave it on your resume than to have a gap IF other candidates' resumes will have the information.
  • If you’ve travelled, or taken time off to study, include that information – one line and a date can be sufficient.
  • Keep your language outcome focused and active – this will help to position you as someone with a career plan.
  • Consider sourcing outside feedback if you’re transitioning to a new industry.
  • A new industry may value certain skills, or systems experience – so learn what to emphasize and what not to leave out.
  • Always be prepared to discuss everything on your resume – consider in advance how best to position information.

Employers: The Ambiguity Effect and Hiring

As a psychological bias, the ambiguity effect can create challenges in the hiring process.  Consider the following:

  • Is it worth dismissing an otherwise quality candidate because of a perceived gap in his/her resume?
  • Don’t overvalue sections of a resume that don’t impact the quality of a hire such as hobbies or interests.
  • Consider bringing a candidate to the interview stage so you can ask them about missing resume content – there may be a simple explanation.
  • When a candidate answers a question and you feel you need more information, don’t hesitate to ask a follow-up question.

We are naturally risk adverse. We don’t like ambiguity. What we do like is to feel that we have the information we need to predict the outcome of a situation. For candidates, this means including content on your resume rather than leaving a gap, so that employers don’t see it as an inconsistency. For employers, it means not dismissing a candidate out of hand because we perceive that something is missing on their resume.  Ambiguity can sound your internal alarms but by controlling your natural bias against it, you can ensure that you hire the best candidates for your roles.

Want to read more about the ambiguity effect? Check out what Wikipedia has to say about it.

Your Next Step

No one should walk the job search or hiring road alone. At Clarity Recruitment we help others realize their success through a process that marries proprietary technology with unwavering commitment.  Contact us today to take control of your career, or to partner with us to hire well.

Clarity Recruitment, connecting exceptional people with remarkable companies.


WARMTH AND COMPETENCE

Ah yes, the glorious days of high school, where no one felt left out and everybody was a cheerleader. Right?  In reality high school, with its cliques and groups, is representative of our very human tendency to stereotype. For most of us, getting older is a welcome reprieve from our teenage years and we build close relationships and find our ‘people.’  But we still don’t like those who might throw a wrench into the works of a smooth functioning team, and our judgments of outsiders are fast and definite.

But, what does this have to do with hiring and being hired?

A whole lot actually.

Here’s the thing.  The brain likes to make decisions quickly – to categorize (See Thin Slicing). We do it without conscious thought and it is largely out of our control.  Thankfully, we are starting to understand how our brains make these initial judgements.  By understanding this process, we can determine how positive and negative evaluations (the reasons why we are loved by “our” people and maybe, well, not so loved by those “other” groups) form and how we can maximize our ability to get what we want out of any social interaction.  

The first thing to understand is that when we meet someone we judge them (and are judged) based on TWO factors:  Warmth and Competence.  Warmth relates to how warm, trustworthy, likeable or similar to us someone is.  Competence refers to our perception of another’s abilities in a relevant domain (in high school this may have been “coolness” or “number of friends”, in business this is often a professional competency like confidence, intelligence, managerial experience, or creativity).  If we can learn to understand how these factors shape our decision-making, we can understand how to make hiring managers love us and how to avoid bad hires based on subconscious misperceptions.

Practical Applications

 

 

 

Competence is the easier of the two to convey and understand, particularly in a traditional resume and interview-oriented hiring process.  By confidently backing up the skills and competencies listed on your resume, you can determine how competent you will be perceived to be.  To master this powerful element, ask yourself:  “What can I do / What am I great at?” and “How can I communicate this in a reliable fashion?”

But with great power comes great responsibility and this is particularly true when competence meets warmth.  Perceived warmth, or lack of warmth is what can make someone’s competence seem helpful or threatening. In fact, it’s the stumbling block for many bad hiring decisions.

Why?

We tend to favour those who are similar to us, particularly with regards to emotions, extroversion, and energy (those in our “In-Group”) while finding those who are different from us (those in our “Out-Group”) to be colder and more distant.  We tend to think of those who are competent but cold as threatening (“stereotype threat”), jealous, or envious.  Think:  Why aren’t they more talkative, open, engaged (or Why are they so unprofessional and talkative)?  They must be up to something!  Individuals whose warmth does not match our own may not share our goals and aims and are therefore not trustworthy.  

Alternatively, if someone is warm (or part of our “In-Group”) we may let competency deficiencies slide in the face of a “really good feeling” about that person.  They may not be as good, but their values and emotions seem more “inline” with what your organization is after.  Whether or not any of this is true, our brains make these evaluations almost instantly and outside of our conscious control!

It is easy to see how these biases can cause us to make sub-optimal hiring decisions, so what can we do…?

Employers: Hire Well the First Time

Here are some tips for employers to help you hire well the first time:

 

 

 

 

 

 

 

 

 

 

  • Be aware of your in-group bias – the levels of energy, emotion, extroversion and engagement that you prefer and display.  Who do you see as “one of your own”.  When facing something that contradicts this, be more aware of potentially misleading “gut feelings.”  
  • Don't hire or promote someone just because they're a non-threatening in-group member.
  • Warmth in a candidate is good, but competence is better.  This should be metric #1.
  • Don't let competition get in the way of hiring a competent/skilled performer.  Natural tendencies to feel competitive or threatened are good indications that you need to debias your hiring effort. 
  • Be aware that stereotypes around certain groups, (think nerds –although nerds are cool now), can get in the way of a good hire.

 

 

 

 

 

Candidates: Get Hired

Knowing how to present your soft and hard skills can help you impress a prospective employer and be the candidate of choice. Consider the following when interviewing:

 

 

 

 

 

 

  • First, appear competent, then appear warm.  Without conveying competence from the start, you run the risk of being perceived as incompetent and cold (the worst possible start).  
  • If you're different from the culture or interviewing style into which you are attempting to gain access, up the warmth (so that you are not perceived as a skilled competitor).  Try to find commonalities with your interviewers and match their energy, openness, and engagement.
  • Be aware that these are the first two thin slices that people will judge.

Employers value both warmth and competence.  They also prioritize, without often realizing they are doing so, those that won’t compete with members of their group/team.   If you want to get hired, emphasize accomplishments and skills, but do it from a posture of service.  If you’re hiring, understand that bias can colour the process. Know that the very human need to feel someone is both capable and like us can make you hire the wrong person, or pass on a candidate who could have been exceptional.

 

 

 

Want to learn more about warmth and competence? Read what Wikipedia has to say on the topic.

Your Next Step

No one should walk the job search or hiring road alone. At Clarity Recruitment we help others realize their success through a process that marries proprietary technology with unwavering commitment.  Contact us today to take control of your career, or to partner with us to hire well.

Clarity Recruitment, connecting exceptional people with remarkable companies.

 

 

 

 

 


THIN SLICING

After watching couples for only 15 minutes, a seasoned marriage counsellor accurately predicts 90% of the time whether they’ll still be together in 5 years. An ancient sculpture is acquired by a museum. It appears authentic, but art experts experience a ‘gut feeling’ that something is wrong.  Its authenticity is later thrown into question. This ‘gut feeling’ is Thin Slicing, the ability to see patterns in events based on only ‘thin slices’ of experience or observation.

In Malcolm Gladwell’s book Blink he explores intuition and its origins.  His thesis, in part, is that intuition actually comes from a wealth of experiences stored in the subconscious brain.  When greeted with a scenario that is similar to these experiences, a hunch is produced that helps guide decision making. Some of us ‘trust our gut’ and others don’t.  The question is – should we, especially if we only hire two or three times a year?

Employers and Thin Slicing 

Do we dismiss a candidate’s resume, or mentally place them in the unsuitable pile during an interview if our gut tells us to?  It depends. Consider that most of our judgements are based on the first few seconds of meeting someone (or reading their resume). It follows then that we need to have a wealth of experience to draw on to ensure that our thin slicing isn’t simply rooted in bias or mistaken assumptions. Knowing this, we might ask ourselves:

  • Which thin slices am I an expert in? For example, I have done this role before and I know which technical skills are needed to be successful.
  • Are there thin slices that might be grounded in bias? For example, a financial analyst with this skill set is only worth (add dollar amount).
  • Could I tap into outside sources of knowledge to flesh out areas where I’m not an expert? For example, market expectations, educational requirements, or the potential to hire someone with transferrable skills
  • If I only do this once or twice a year should I work collaboratively with a recruiting agency who specializes in hiring finance and accounting people and therefore know which thin slices matter most?

Candidates and Thin Slicing

You’re creating your LinkedIn profile, trying to build a great resume and pondering how to answer the infamous “Tell me a little bit about yourself.” You’re feeling overwhelmed. How do you order your most sellable points for full effect? Heck, what is most marketable about you in the first place?  When considering thin slicing, here’s how to make sure employers get the right message about you:

  • Consider that employers react most positively to feelings of Warmth and Competence.
  • Ensure that you list your accomplishments under each of your roles.
  • Keep your language outcome focused to convey strength.
  • Keep your body language open and professional during the interview.
  • Practice active listening  (/blog/the-art-of-listening-in-an-accounting-interview/) .
  • Think carefully about how you dress for your interview. Shake hands firmly.

The expression ‘trust your gut’ is part of our everyday experience.  The question is, how can we use it to our advantage during the hiring process, or to help us land the job we want? How deeply does our expertise go and when do we need to call in outside reinforcements to make sure our bias isn’t guiding our decision making?  Thin slicing exists. It has an impact.  Make sure you know how to use it to accomplish your end goal – a great hire or securing the role you want.

Want to read more about thin slicing? Check out what Wikipedia has to say.

Your Next Step

No one should walk the job search or hiring road  alone. At Clarity Recruitment we help others realize their success through a process that marries proprietary technology with unwavering commitment.  Contact us today to take control of your career, or to partner with us to hire well.

Clarity Recruitment, connecting exceptional people with remarkable companies.


Clarity Recruitment

Companies have a choice whether or not to be difference makers in their industry.

At Clarity Recruitment we believe in placing careers not jobs and connecting exceptional people with remarkable companies. As a finance and accounting recruitment agency in the Greater Toronto Area we leverage our tenured team, proprietary technology and sheer tenacity into helping others realize their success. And we stand behind it all with a shared risk guarantee.

Now that’s different.