Dealing with bias in business decisions

The truth is that everyone is prone to cognitive biases and from time to time we all do irrational things.

Decisions in business are inevitably loaded with bias. 

By ‘business bias’ I mean that managers tend to be prejudiced in favour or against one thing usually in a way considered to be unfair or distorted. 

We’ve all seen it before, an intelligent manager with bags of experience, allowing his/her bias to get the better of him/her and prevent same from objectively evaluating the information at hand. What generally tends to happen is that the person with the most power and authority ultimately wins and business decisions are consequently taken with an inherent amount of bias. Sometimes the end result is positive regardless and other times bad decisions are taken because of decision makers’ flawed cognitive bias. 

Leaders and managers like to think that they are different; that they are rational decision makers. The truth is that everyone is prone to cognitive biases and from time to time we all do irrational things. We sometimes know it and carry on regardless or we are innocently oblivious to it all. Leaders and managers are no exception. 

Allow me to be specific and I am sure you will start to recognise situations you’ve been in where this has happened at your place of work. 

Action oriented bias: When a business or a department does well, management almost always overestimates its contribution to that success and its future ability to repeat the success again and it gives chance no credit at all. This is a common flaw of management thinking and one of the main reasons why eventually all management gets it wrong; 

Confirmation bias: When we read a memo or a business proposal we tend to only give importance to the information that confirms our pre-conceptions. I remember my politics A-level lecturer telling us that ‘…voters read what they want to read’ meaning that two people with diametrically opposed political beliefs (e.g. Right vs. Left) tend to read the same newspaper article and draw out different arguments or conclusions. The same applies in marketing. The same applies in business; 

Consensus decision-making bias: If in a meeting one or two people advocate something the probability is that the rest will follow and agree. People for some reason or another always seem inclined to favour consensus decision making which means that brilliant ideas can sometimes be suffocated or crowded-out. I detest this and love meetings where there is a clash of ideas or view points since this is when decisions or ideas are stress-tested properly; 

Anchoring bias: In salary or price negotiations, what a lot of people don’t realise, is that the first person to come out with a figure actually has an advantage since he/she is establishing a range of reasonable possibilities due to anchoring bias;   

Loss aversion bias: Employees feel losses a lot more than they do gains of the same amount. Unless someone is a natural born gambler, we tend to be risk-averse creatures. Therefore, decision makers tend to ‘play it safe’ if a new proposal has encountered some initial losses and can sometimes pull the plug too early on a good idea; 

Sunk-cost fallacy: Managers tend to obsess over past costs (measured in terms of time, effort or money) that are unrecoverable when deciding whether or not to continue with a project. It is as if that which has already been invested and subsequently lost should still determine what we do going forward, when it shouldn’t. I come across this a lot as a management-consultant. My client will have invested a lot of emotional and financial resources to a project that is clearly failing and will look at me with utter disgust and incomprehension when I tell them to pull the plug; 

Status quo bias: This I must admit is my pet hate. Managers love the status quo and when their leaders try to challenge it or change it they resist with contempt. I blame the dreaded comfort-zone. People dread coming out of it. So when decisions are taken be warned that managers tend to be biased in favour of preserving the status quo almost always. 

Obviously, there are many more which I could mention, such as hyperbolic discounting bias (customers prefer a smaller discount now instead of larger ones later on) or negativity bias (managers tend to put more emphasis on negative experiences rather than positive ones) but I don’t have the time to delve deeper in this article. My point is that we think managers are rational creatures who objectively look at the facts and take (what Quality Auditors like to refer to as) ‘evidence based decisions’ but in reality they are mortals just like the rest of us. 

What to do to overcome business bias is undoubtedly the scope of another article / blog but the first step surely is to recognize that bias is everywhere. Sometimes it is enough to arrest the mistake by just being aware or conscious of something. 

So next time you are at a meeting, try to make an effort and watch out for this sort of business bias, since it definitely undermines the quality and effectiveness of our decision-making at work.

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