If you’ve ever seen a business owner or CEO make a decision that makes no logical sense, you could have been witnessing cognitive bias at work.
August 18, 2023
If you’ve ever seen a business owner or CEO make a decision that makes no logical sense, you could have been witnessing cognitive bias at work.
Cognitive bias occurs when the way we perceive information is distorted, leading us to make moves that feel right, but are in fact very wrong.
Being able to recognise – and overcome – our own biases is essential if we want to grow and evolve as leaders while achieving greater success for our business.
Cognition – or the way we think – is influenced by myriad factors ranging from past experiences, culture, and environmental factors.
Bias is when we favour or reject something or someone and is usually perceived as being prejudicial or unfair.
Common types of cognitive bias include:
Confirmation bias – Seeking out or recognising information or evidence as confirmation of our personal beliefs.
Hindsight bias – The tendency to see the result or outcome of an event as overly predictable, also known as the “I knew it all along” phenomenon.
Confidence bias – Confidence or overconfidence bias is the belief that we are more than we are, i.e., more honest, intelligent, accurate or funny.
Framing bias – When we make a decision based on the negative or positive presentation of the information, rather than the facts. An example might be two glasses, each filled with the same amount of water, but one is marked ‘half full’ while the other is ‘half empty’. Framing bias would occur if we chose the one marked half full.
One study of accountants who worked for small and medium sized enterprises showed that there was a direct correlation between cognitive bias and the growth of a company.
Imagine you are interviewing for a new hire. If you connect with one person over a shared passion for a particular band or restaurant and you immediately warm to them, you’re more likely to hire that person. Focus on the facts has been replaced by emotive thinking.
While it can be tricky to know when we are thinking in a biased way, there are ways to get better at spotting distortions.
Three Options Always – Even if you’re set on one decision, take the time to imagine two alternatives. Ask yourself what the pros, cons, and consequences of each are.
Test Your Ideas – Smart business leaders don’t only surround themselves with smart people, but they listen to them. Task your team with being honest about processes they think could be improved.
Set Clear Boundaries – Have clear rules about how much you’re prepared to pay for something or how long you’ll devote to a project before you get caught up in the emotion of success seeking.
Own Your Mistakes – No one is right all the time. If things go awry don’t be scared to admit defeat and start again with different tactics. Changing your approach is a strength not a weakness.
As humans we are inherently biased, but we can get better at recognising where our biases influence our business decision-making.
Consulting colleagues or a board you trust, talking to your accountant about what decisions have most impacted your business growth, and not making rash decisions when under undue pressure can all help remove bias.
Business leaders are often under a great deal of stress to react quickly to situations that deserve greater consideration. Taking the time to pause, gather the facts, and consider all outcomes can help make business bias a non-issue for you and your company.
For personalised service, the very best financial products and exceptional customer service where you really matter, look no further than the professional team at Mainland Finance
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