Every day, people are inundated with a myriad of decisions, small and big. What do you want to eat for breakfast? What time should you meet a friend for lunch? Which university should you attend? Where should you go for vacation? What kind of investment profile should you build? What is the best solution for your client?
Decision-making is a key aspect to problem-solving and critical to developing good strategies. We tend to believe that we make decisions in a rational manner. However, very few of our decisions are purely rational. Almost every decision we make is subjected to a range of non-rational influences that psychologists call cognitive biases. Cognitive biases are thinking patterns that are based on past experiences that may lead to memory errors, inaccurate judgments and faulty logic. These biases can affect the quality of our decisions and most of the time, we are unaware of their influences. Thus, this article will explore several common biases that leaders should be more consciously aware of when processing information and making decisions.
Leaders are ‘an instrument of change’. To successfully help peers and juniors, leaders need to first understand themselves as the ‘instrument’ and how the ‘instrument’ is used. Often, we perceive what we believe to be reality. Our beliefs are based on our perceptions and assumptions about the world and ourselves. Hence, the degree of accuracy with which we understand a situation and decision to be made, greatly depends on how well we know ourselves. Therefore, before we make a decision it is important that we are able to recognize our own biases and the ‘lens’ through which we filter our perceptions. Here are several cognitive biases, which we may consciously or unconsciously encounter when perceiving information:
- Anchoring Bias:
- The tendency to be over-reliant on the first and/or last or specific piece of information or fact that one subconsciously uses as a benchmark
- Availability Heuristic:
- The tendency to be over-reliant on knowledge that is readily available to an individual when evaluating a specific topic, method, concept or decision
- Bandwagon Effect (aka Herd-Instinct):
- The tendency to adopt a belief based on the number of people sharing the same belief
- “Many people believe it, so it must be right”
- Blind-Spot Bias:
- The inability to acknowledge one’s own cognitive biases but can recognize the errors of others
- Individuals will have the tendency to blame others easily before examining their own actions and decisions
- Choice-Supportive Bias (aka Ego Bias):
- The tendency to think that one’s choice is better than others
- As a result, the individual has difficulty working in a team environment because they are unable to accept another person’s decision
- Confirmation Bias:
- The tendency for one to listen to, search for, interpret information in a manner that confirms one’s preconception
- One will ignore and filter out information that he/she does not want to see
- Conservatism Bias:
- The tendency in which people favor prior evidence or forecasts at the expense of acknowledging new information
- These people tend to be resistive to change
- Analysis Paralysis:
- The tendencies to continuously seek for more information and/or over analyze a situation so that a decision or action is never taken. As a result paralyzing the outcome.
- A form of inability to make decisions, which typically stems out of fear of making the wrong decisions.
- Overconfidence Effect:
- The tendency for one to be over confident in his/her judgments and to be greatly reliant on their own subjective opinion rather than the objective accuracy of those judgments.
- These individuals tend to believe too much in their own abilities and ignore the input of others
- Pygmalion Effect (aka Self Fulfilling Prophecy):
- Decisions tend to be biased and aligned towards fulfilling one’s own belief, expectations or predictions
Now take a moment and think about some of the decisions you have made in the past, or decisions you have made that has impacted your peers or juniors. You will probably notice some residual fingerprints of some of these cognitive biases.
For instance, less-experienced leaders tend to draw upon their limited knowledge of past experiences and decisions. Although there is nothing wrong with drawing references and information from past experiences, it raises the risk of being over-reliant upon readily available knowledge. Thus, a young leader may not be able to analyze a new situation without trying to unconsciously observe similarities and ultimately draw homogeneous conclusions. This can lead to a misdiagnosis of the situation and as a result, erroneous decisions are made. This is an example of employing the Availability Heuristic. Cognitive biases are mental shortcuts that carry the risk of misinterpreting conceptual relationships and ultimately causing biased decisions to be made.
The following diagram summarizes the continuous cycle of how we develop cognitive biases and how they affect our decisions. It is important for us to penetrate this vicious cycle in order to improve the way in which we perceive information and process our decisions. There are various internal and external factors that assist to develop our cognitive biases. These biases cause us to have the tendency or preference towards a particular perspective, ideology or result when we make a decision. The outcomes and results of this decision will in turn become factors that influence and alter our existing cognitive biases.
Pattern recognition is second nature to all of us; hence, fighting biases can be challenging but not impossible. There is no specific methodology to overcome cognitive biases, but there are various ways in which we can adopt to change the angle of the lens in which we perceive information.
Here are four ways that you can use to help mitigate cognitive biases in your decision-making process:
- Being aware is key to reduce the influence cognitive biases. Simply being aware of their existence will make you more conscious and can distort your thinking to become more rational. As a result, it will help lessen their impact.
- Read and learn as much as you can about cognitive biases and recognize them in yourself. With time and practice, you will be able to identify them in others and be a better instrument of change for them.
- Collaborating is an effective tool that is not practiced as often as it should be. It is simply easier to notice biases in others than yourself. Thus, discussions with others can help shed light on biases that you may be unaware of in yourself, as suggested by the blind-spot bias.
- Questioning your reasoning and decisions is a fundamental way to challenge the perceptions, judgments and conclusion that can be marred by cognitive biases. Use your understanding of cognitive biases and ask the right questions of yourself and others to help identify biases on perceived best decisions to avoid their trap.
- Brainstorming and freewheeling discussions can be useful, however, it is also a platform that can allow cognitive biases to float freely and contaminate resulting decisions.
- Hence, establishing a structured and consistent framework and process for making decisions can help to identify and terminate cognitive biases before they become infused in your decisions.
The human mind is a marvel but a fallible one
With a better understanding of how our brain works, we can now anticipate the circumstances in which errors of judgment may occur and take actions to guard against them. Arguably the most successful investor in history, Warren Buffet, “acknowledges that even his decisions could be swayed by this brain bug” (Forbes, 2013). For investors, Confirmation Bias tends to be particularly dangerous. For instance, once an investor begins to like a company, he/she may dismiss and filter out negative information as irrelevant or inaccurate. Often, the investor may continue to invest in a declining stock longer than they should. This is a result of their choice to interpret all information and news about the company in a manner that favors the company prospects.
Cognitive biases can creep into every decision we make, and it is crucial that we take action to mitigate them as soon as possible. Only by filtering out our cognitive biases will we be able to be confident that the recommendations to our clients are the best decisions made based on the relevant and available information to us.
The human brain is a machine for leaping into conclusions and reluctant to consider alternatives
I’ll leave you with three questions in which you can ask yourself and begin to minimize the impact of cognitive biases in your decision making process as well as those of others:
- Is there any reason to suspect the person making the recommendations of biases that are based on self-interest, overconfidence, or attachment to past experiences?
- Has the person been obsessed or fixated with the recommendations that he/she has provided?
- Within the decision making team, was there groupthink or were there disputes?