Are your business decisions failing because they are biased?
Cognitive bias is something that all of us need to understand.
It affects our own decisions as well as those our leaders make in running the business.
It affects the setting of strategy as well as its execution.
It affects our and others assessment of what might happen (aka risk).
It affects our trust and belief in ourselves and those we rely on for information.
We need to understand how cognitive bias affects our and others decisions so we can fight it. It can lead us to making the wrong decisions and failing to optimize our and enterprise performance.
- Perhaps the best-known name in the field of cognitive bias is Daniel Kahneman. Thinking Fast and Slow is a major work. I highly recommend this video summary.
- 24 Cognitive Biases That Are Warping Your Perception of Reality includes a great infographic that I recommend downloading and keeping where you can see it.
- Why Smart People Make Stupid Decisions includes a list of cognitive biases and a few ideas for addressing them.
- The National Association of Corporate Directors (NACD) has shared a recorded interview with a professor of psychology. (If you don’t want to listen to it, there is a link to a transcript). In Depth: Brains and Bias discusses some real life examples.
As I look back on my own career, I can think of many situations where I made what turned out to be a poor decision as a result of my own bias. For example:
- I trusted people that I liked for their outgoing personality (charm) when I should have challenged their knowledge of the subject more thoroughly.
- I hired individuals for their resume and certifications over others who probably had more imagination and curiosity.
- I had too much respect for those in authority, trusting that they would follow through on commitments.
As you look at the decisions you make yourself, the ‘risk assessments’ you make or facilitate, the people who come to you with information, are you aware of how your biases may lead you astray?
What do we need to do to help those making business decisions become aware of their cognitive biases and combat them?
I think it starts with the essential first step of recognizing our own fallibility, our own biases.
I welcome your thoughts on this important topic.
Leave a Reply to Evgeny Cancel reply
Share this blog
Norman. I fully agree. If/when you as a risk manager (or other position as well) aspire to have an impact on decision making, you need to understand how decisons are made and how human beings are biased.
I have found that one viable approach is to work with the people that prepare the material the decison is based on (a business case or the like) and ensure that risks and opportunities are duly considered.
This way, youu can make a hard system 2 decision a more palatable system 1 decision and drive an implementation of the decision that is more prudent. You may also invoke higher risk taking when that is approproate – which issurprisingly often the case as the inherent system 1 thinking often calls for caution …. too much caution.
I also agree Kahneman is a “must read”
This is why decisions should not be made in a vacuum. Schooling gives one the tools to do a job, and experience teaches how to use those tools. Experience also teaches that no one knows everything about everything. How a person engages others in a decision separates the “great” decision-makers from the “good”. decision-makers.
Our intelligence services spend a lot of time teaching their analysts about various biases in thinking. There is a free PDF available from the CIA called “Psychology of Intelligence Analysis” by Richards Heuer that may be of benefit to people trying to think more effectively.
Good insights. I think many of us are guilty of allowing bias to influence certain decisions.
“Decisions are not made, they happen”, Clayton Christensen (HBS Professor) says.