Cognitive Biases and Decision-making Models
What is a Cognitive Bias?
Cognitive Bias = A systematic pattern of deviation from rational thinking.
Your brain takes shortcuts (heuristics) to process information faster. These shortcuts are usually helpful. Sometimes they fail.
High-Impact Biases for Founders
| Bias | What It Is | Founder Trap |
|---|---|---|
| Anchoring | Over-relying on the first piece of info | Your first valuation estimate shapes all future thinking |
| Confirmation Bias | Seeking info that confirms what you already believe | Only talking to customers who love your product |
| Availability Heuristic | Overweighting recent/memorable events | Pivoting after one bad week |
| Sunk Cost Fallacy | Continuing because of past investment, not future value | Keeping a failing hire because you trained them |
| Dunning-Kruger Effect | Low competence creates high confidence | Overestimating your marketing knowledge early on |
| Curse of Knowledge | Assuming others know what you know | Writing product copy only you understand |
| Loss Aversion | Losses feel 2x worse than equivalent gains | Refusing to cut prices even with zero traction |
| Social Proof | Following others’ behavior in uncertain situations | Building features just because competitors have them |
Decision-making Models
1. The 10/10/10 Rule (Suzy Welch)
Before deciding, ask:
- How will I feel about this in 10 minutes?
- In 10 months?
- In 10 years?
Use it for: hiring, pricing, partnerships, pivots.
2. The Inversion Framework (Charlie Munger)
Instead of asking “How do I succeed?” ask “How do I guarantee failure?” List all the ways to fail. Avoid them.
Example: "How do we fail at onboarding?"
- Make sign-up require 10 fields
- Send no welcome email
- Give no clear first action
- Show no progress indicator
→ Invert each one to build your onboarding checklist
3. The Second-Order Thinking Model (Howard Marks)
First-order: What happens if I do X? Second-order: What happens as a result of that result?
Decision: Offer a free tier
First-order: More signups
Second-order: Support burden increases, paid tier is perceived as less valuable
Third-order: Free users never convert, revenue stalls
4. Pre-mortem Analysis
Before starting a project, imagine it is 12 months from now and it failed completely. Write down everything that caused the failure. Now go prevent those things.
Motivation Models
Intrinsic Motivation Extrinsic Motivation
────────────────────────────────────────────────────
Driven by internal reward Driven by external reward
(autonomy, mastery, purpose) (money, status, grades)
More durable Wears off over time
Better for creative work Works for repetitive tasks
Harder to create Easy to create and remove
Implication: If you want a team that lasts, build intrinsic motivation. Give people ownership, not just instructions.
Applying Psychology to Sales and Marketing
| Principle | Application |
|---|---|
| Scarcity | “Only 3 spots left this cohort” |
| Social Proof | Testimonials, cohort numbers, notable alumni |
| Authority | Credentials, track record, case studies |
| Reciprocity | Give free value before asking for anything |
| Commitment/Consistency | Small yeses lead to bigger yeses |
| Liking | People buy from people they like — build a real persona |
Use these ethically. The goal is alignment, not manipulation. A customer who buys based on psychological pressure and doesn’t get the result will not refer you. A customer who buys because they genuinely see the value will.