Exploring Cognitive Bias In Your Business Decision Making

I was recently introduced to the cognitive bias codex, a visual which displays over 180 cognitive biases, created by Terry Heick.

Cognitive bias “is an inherent thinking ‘blind spot’ that reduces thinking accuracy and results inaccurate-and often irrational-conclusions.”

This type of bias creates a systematic pattern of deviation from the norm or rationality in judgment. Cognitive biases are often a result of your brain attempting to simplify how it processes information. Your brain creates rules of thumb to help you make sense as situations arise and reach decisions with relative speed.

When you make decisions and judgements you would like to think that you are applying sense and logic based on your knowledge and expertise for a subject and all available information. However, what often occurs is these biases can trip you up as you default to using the shortcuts you have available. Some of these shortcuts are a good thing as they allow quick decision making and can protect you from danger for example, but on other occasions they hinder you.

Some biases distort your thinking and will undoubtedly change how you think or act. In your business, it is therefore good to be aware of how cognitive bias can influence your thinking and put some practices in place to challenge a potential bias.

I find that some cognitive biases are easier to grasp than others and these are a few examples.

(1) False Consensus Effect. We have been seeing this increasingly in politics over recent years. This bias is the tendency to overestimate how much other people agree with you. Every time I hear Trump address large crowds and talk about his close relationship with other world leaders I sense this bias is in play!

(2) Optimism Bias. This one has my name written all over it. This bias previously led me to believe that I am less likely to suffer from misfortune than others. However, I think this one was reprogrammed a little when I had a serious illness 10 years ago and I was rewired a little! This exemplifies how bias can change when you are exposed to a new reality.

(3) Planning fallacy. I’m confident many of us are affected by this. This bias is the tendency to underestimate task-completion times. Although in equal measure, I think many of us do the opposite and discover that things we have been putting off can be done quite quickly with focus. Another bias in play perhaps?!

(4) Selection bias. This bias is about how you notice something more following something happening to cause you to be more aware of it. Women who are trying for a baby will often say that more women the ever are pregnant around them. Had they not been trying to conceive it is likely they would notice pregnancy around them. Incidence of pregnancy is not higher, they are just notching them more.

Each of these biases has relevance in all aspects of your life. There are some biases which will clearly create poor judgement or frustration in business.

One example of this is the “hot hand phenomenon or fallacy” is a bias which encourages people to believe that a person who experiences a successful outcome has a greater chance of success in further attempts. Perhaps then it is no big surprise when an investor looks for this evidence. Founders who have previously exited a business successfully are seen as most likely to do it again and investors are quicker to part with their cash to them over new founders. I also think this can become a self-fulfilling prophecy when success is more likely due to the increased level of investment and this reinforces the bias further. There is, of course, a balance of bias and logic but the experts would argue that in this example, investors should not be too quick to dismiss the new founder opportunity.

If cognitive bias is generally considered to be uncontrollable, systematic error in thinking, how can you reduce bias in your decision making? It is early days in my exploring how to do this more consciously, but there are some practices which can assist. These are centred around being more aware of how you recognise and manage both your emotions and biases in decision-making.

Reading around the subject, a number of experts suggest the following practices to reduce bias in your decision making:
(1) Avoid making decisions when you are tired or when you have your head elsewhere and are not feeling present.
(2) Consider how other people will be impacted by your decisions to encourage you to think through options and consequences
(3) Get another perspective by stepping into the shoes of others or ask for external opinions, engage with experts
(4) Assess available information and data alongside your intuitive judgements

What experience do you have identifying and managing bias in your own decision making? This is an area I am keen to explore further and am grateful to Radu and Raluca Judele who have opened up this discussion in the business community of the West Midlands region, UK

Originally published at https://theimpactmentor.co.uk on November 23, 2019.