How to think clearly: 24 ways cognitive bias distorts business decision-making - Heart Internet Blog - Focusing on all aspects of the web

Cognitive Bias is not, of itself, a bad thing. Without such biases, we likely wouldn’t have survived the long centuries of living in caves in constant danger of attack by sabre-toothed tigers. The problems Cognitive Bias produces today come about because, by and large, we no longer live in caves in constant danger of attack by sabre-toothed tigers. Dilemmas, today, are a far cry from this, but are still very biting. Should we hire this person? Should we fire them? How much should we charge the client? You know the type of things. They can seem confusing, fraught with risk and can be downright exhausting.

If you struggle making tough business decisions, you’re not alone. Most do. We’re human, after all. These handy tips should help make your thinking clearer than a polished crystal ball.

What is Cognitive Bias?

There are lots of biases. These are the short-cuts our brain takes; the adaptations it makes, based on experience. It is the individual, subjective way our brain – and, therefore, we – understand the world. If, for example, you ate berries and they made you feel sick, your memory might tell you not to eat berries, even if you’ve eaten and enjoyed other berries in the past. That would be an Availability Bias, where your recent bad memory eclipses older pleasant memories. But, the net result is that it keeps you safe from poisoning.

So, you see, a Cognitive Bias helps keep us safe in an unsafe world. The problems arise because our world has changed beyond recognition, and is continuing to constantly change, yet that primitive part of our brain that is hot-wired into our instincts and emotions, is still on the lookout for sabre-toothed tigers and poison berries.

If we are unaware of them, Cognitive Biases can impact upon decision-making and innovation in business. Such Cognitive Biases can lead us to fear the repercussions of exploring new avenues in business; they can limit creativity and ideation and dissuade us from the kind of divergent thinking that leads to genuine innovation.

They affect the way we see the world.

Through a glass, darkly

Decision-making in business is dominated by our instinctive need to avoid risk. But, of course, if we’re working in the creative industries in the modern world, we can’t allow that instinct to rule us. If it didn’t risk a few sabre-toothed tigers and poison berries, we’d never venture beyond the territory we’re familiar with, never suggest a new idea, develop a new product or begin a new project.

And, as anyone who has run a business or led a team knows … If you stand still, you’re really going backwards. So we have to keep moving forward, even though it’s scary!

In order to identify Cognitive Bias that may be affecting your business or team – a few phrases you can keep an ear out for include:

  • That’s not how I usually do things.
  • It’s not our core business
  • It won’t work, it’s not what our customers want.
  • It’ll take too long.
  • There’s no budget for that.
  • Let’s wait for the market research.
  • Let’s just park that and circle back to it.
  • We can’t do that, we’ll need re-training

As you look through the list of Biases below (which is only a representative sample of the ones that most obviously affect business), you might be tempted to compare your own performance to them, or that of your colleagues.

It’s important to remember that these tendencies and emotions are instinctive. You are not conscious of your responses any more than anyone else is. You can’t control them.

What you can control, mind, is your responses to these emotional cues. Being aware of them, is half the battle.

1: Anchoring bias

Anchoring happens when the first thing we experience influences our opinion of everything that comes after. In business, you can influence customer response by anchoring them to a time-scale or price you know you can beat. If you think a job will take a week to complete, tell the client two weeks. When you deliver the job early, the client (who was anchored on the two week deadline) will be more impressed.

Remember though: if a certain goal was stated at project start then changes part-way through, this can cause resistance within your team.

2: Attentional bias

Attentional Bias is when people give a lot of attention to certain events and ignore others. So, if a customer receives poor service at a shop they have visited many times, they may decide to shop elsewhere because of that one bad experience, rather than remember the dozens of good experiences that preceded it, and give the shop a second chance.

A single problem can alter a customer’s entire opinion of a business.

Insurance companies employ Attention Bias by making customers think about the rare occasions when things go wrong, rather than the many occasions when they don’t.

3: Availability bias

Availability Bias is the tendency to allow our judgments to be swayed by examples that come easily to mind. So, if prices fall from a high price, stay static for a while, then rise to a medium price – that rise will feel greater than it is, because people will have forgotten that prices used to be higher.

In this way, recent events or emotions can seem more important to us than distant ones, even if the recent ones are atypical.

Similarly, this same bias means that people are likely to buy an umbrella in the autumn, after getting rained on for the first time, rather than at the end of a long, dry summer, to avoid being rained on.

4: Better than average bias

Everyone has some element of ego and vanity about them, which means most people believe their intelligence, wisdom and experience makes them ‘above average’. Clearly, by definition of the word ‘average’, 50% of people must be below average, but few people think of themselves as such. Better than Average Bias means we are likely to trust our decisions over those of strangers – especially because we know what experiences and efforts brought us to our conclusion. This makes it difficult to value another person’s perspective above our own.

A good way to employ this in marketing is to personalise your messages in a ‘what we can do for you’ way – by flattering the customer’s wisdom in choosing your business.

This – and Availability Bias – also relate to Fundamental Attribution Bias.

5: Choice supportive bias

Once we have made a decision – if that decision is challenged – we will look for evidence or rationale to support it, rather than alter it. We are inclined to feel that our decisions are ‘right’ and, therefore, changing them is ‘wrong’ (even if the situation changes or new evidence is presented).

Choice Supportive Bias contributes to customers’ reticence about changing a service supplier, as well as their reluctance to change a vote, for example.

6: Cluster illusion

It’s tempting to feel that several sales in the same week indicate a permanent trend upwards, or several mistakes in the same iteration indicate a systemic problem, when the timing might simply be a coincidence and the events entirely unrelated.

Before handing out the bottles of champagne, or restructuring the department – it’s best to wait ’til the end of the quarter, at least, to take the cluster in context – and compared to a previous performance, if possible, to get a proper perspective on a cluster of events.

7: Confirmation bias

Confirmation Bias is our inclination to value information that confirms positions we already hold. Whether consciously or unconsciously, we look for ways to justify the beliefs we already hold. If we fear that an innovation won’t work, we are more likely to allow gainsayers and problem-makers to obstruct us.

Therefore, we are more likely to notice facts or opinions with which we agree and, because of that, we may over-value the opinion or the person presenting it.

So, the first impression a business makes is crucial because everything a customer sees after that will confirm that good or bad first impression.

8: Contrast bias

Contrast Bias is our habit of favourably – or unfavourably – comparing something to a single alternative.

This can be in evidence when a customer asks for quotes. A very high quote makes a not-quite-so-high quote seem more reasonable and a reasonable quote may suddenly seem suspiciously cheap.

Similarly, in job interviews, an adequate candidate may seem much better, in comparison to a terrible candidate.

9: Distinction bias

Distinction Bias is the inclination to over-estimate the difference in quality between two options – when they are judged together and in comparison. This is the key to understanding the power of ‘taste tests’. It can create a scenario where the customer will decide to prefer one option over another when, ordinarily, they would find both options perfectly acceptable.

10: Dunning-Kruger bias

Closely related to Overconfidence Bias, this is the character trait whereby the truly incompetent are incapable of understanding how poor their skills are. The more you know about a subject, the more you realise you don’t know. You develop a realistic perspective.

This bias can impact on a business if a salesperson, for example, or a key member of a design team is less skilled than they confidently believe themselves to be.

11: Framing bias

Framing Bias occurs when our decisions are influenced by context – by the way information is presented to us, as much as by the information itself. This is why, if you’re pitching an idea, you need to concentrate on presenting it in a way that makes it seem less risky, to risk-averse investors, managers and colleagues.

How you present your product also influences how your customers perceive its value and quality. If your shop or website is out of date or scruffy, customers may well undervalue your product. Conversely, great presentation increases perceived value, even if the product is the same.

12: Fundamental attribution bias

This is our tendency to make judgments based on limited evidence, and to generalise about cause and effect. So, if we fail or make a mistake at work, we may well blame external causes – such as a change in circumstances or equipment failure or poor communication – because any one of these factors may have generally contributed to the failure or mistake. If someone else makes a mistake, or fails at something, we are likely to see that as a product of an internal factor, such as their weakness or stupidity and, therefore, consider it to be a personal failing.

This combines with the Just World Hypothesis to create a mindset where we are inclined to feel that people who do bad things are simply bad people, not victims of circumstance.

This tendency can have detrimental effects in businesses if, for example, managers ignore the situational causes of their employees’ mistakes.

13: Groupthink

Groupthink can affect the creative process in small companies – and massively impact the fates of corporations. It happens when the most confident or senior person airs a view, and the members of a group decide not to rock the boat. You may have questions you don’t ask or observations you don’t make – because that would challenge the decision everyone else seems to support. But what if everyone thinks a decision is wrong, but no-one has the nerve to speak first?

This is the kind of group dynamic that can lead to the Royal Mail rebranding as Consignia, Blockbuster turning down repeated chances to buy Netflix, and Microsoft releasing Windows 8.

14: Just World hypothesis

We prefer to think that there is justice and order in the world. As Martin Luther King said: “The arc of the moral universe is long, but it bends toward justice”. In certain cases, this can lead us to feel that, if misfortune befalls someone, they must have deserved it. This is because we are naturally inclined to find meaning in random events The Just World is one of those meanings.

What can be good about this, is that the belief that hard work is rewarded, which inspires people to attempt to better themselves and their businesses.

15: Mirror imaging

Mirror Imaging occurs when you assume that another person or group’s motivations and responses are the same as your own. Just because you think a product is a good idea, you assume your customers will too.

Simple market research can help you shake (or confirm) this belief. It also helps if you, or someone in your team, asks some tough ‘devil’s advocate’ questions of your idea. This will help you develop a better perspective.

16: Moral credential bias

Moral Credential Bias – or Moral Self-Licensing – happens when people assume that, if they did something good in the past (donated to charity, achieved a life-goal, obeyed a rule) that has given them some ‘moral credit’, which means they can now do something bad without feeling so guilty – because they have morally earned the right.

Companies offering luxury products or services can benefit from this bias, by offering their customers a ‘well-earned treat’.

17: Negativity bias

Negativity Bias is the habit we have of giving too much emphasis to negative thoughts or events. If you receive ten good reviews and one bad one, there is a good chance that the bad one will seem more important than all the good ones combined.

There’s little we can do about it – prioritising our aversion to pain is an evolutionary thing – part of our survival instinct.

18: Omission bias

Omission Bias is a way of dealing with moral dilemmas and guilt. We feel that a problem is less serious if another person fails to notice it – and that we, therefore, were right not to point it out to them.

This is also why the phrase ‘sold as seen’ is used preemptively, in case the customer spots a problem with the product after purchase. It can also lead to a mindset where we perceive trying and failing as worse than not trying.

Clearly, this wouldn’t be a sustainable way to run a business or build up a trusting relationship with your customers.

19: Overconfidence bias

While some biases can be created by having access to ‘too much’ information, Overconfidence Bias is often a product of not having enough.

It results from a person’s false sense of their own skills and abilities. It can be a common – and worrying – problem when it manifests in managers and stockbrokers. It can also explain the self-confidence of cowboy builders.

Self-awareness in business and the ability to deliver on one’s promises is a way to ensure this doesn’t impact your business.

20: Optimism bias

This is good old-fashioned Optimism. It is the assumption that bad things won’t happen to us, even though they have happened to others who pursued the same course.

It goes some way to explain how and why business executives risk the future of their business by running up massive debts in acquisition and speculation – because they optimistically believe that the profits will be worth the risk.

Both catastrophic failure and spectacular success can be attributed to Optimism Bias. It all depends how the dice roll.

The Better than Average Bias and Overconfidence Bias can contribute to a mindset that is overly confident, insufficiently cautious and, therefore, optimistic when a more balanced, objective view of the situation might advocate caution.

Inevitably, the flipside of this mindset is:

21: Pessimism Bias

This is a tendency to believe that things will go wrong, and specifically that things will go wrong for us.

Pessimism Bias can feed other biases – such as the Status Quo Bias – to make us even more risk-averse than we would normally be. This can prevent people from presenting ideas in meetings, applying for better positions or making changes of any kind.

21: Reactance Bias

Reactance Bias – or ‘Reverse Psychology’ – is our habit of sticking our heels in. If we perceive that someone is attempting to control us or reduce our freedom of choice, we are inclined to do the other thing, just to resist them. In this way, regulations can create the reverse of the desired effect.

This is why pushy salespeople or sales tactics are unlikely to result in happy, repeat customers.

22: Self Serving Bias

This is the tendency to believe that our failures are due to external factors such as luck, while our successes are due to our skills and abilities. It can lead to a sense of entitlement.

We tend to be aware of this bias in other so, if a person praises themselves – we tend not to believe them. If someone else praises that person, we are more accepting.

23: Status Quo Bias

Status Quo Bias can be a product of the Negativity Bias. It is the inclination to leave things as they are. If a process is working, and you change it, there is a danger that the new process will be less successful, and there may be adverse repercussions. This can produce indecision. Of course, if you choose not to make a decision, that is still a decision – but one that feels safer.

Overcoming this can be a serious issue for start-up businesses. Ways to counteract this include offering money-back guarantees, price-matches or discounts.

It can have detrimental effects on teams trying to innovate, because our natural risk-aversion gears us towards valuing the way we’ve always done things, and fearing the danger of failure if we change.

24: Sunk Cost Fallacy

This is our inclination to continue with something in which we have already invested, rather than abandon that investment. It can be time, money or commitment that has been invested, the effect is the same. We perceive ‘giving up’ as failure and this will be painful and, as the Negativity Bias shows, we are naturally averse to pain.

This explains why companies can be loathe to give up investing in a product, even though it isn’t working or producing profit. The solution is to ignore the expense you have already sunk into it and ask yourself if you would invest in it for the first time, now.

Let There Be Light

Simply being aware that these Cognitive Biases exist is a huge leap towards controlling and defeating them – or, at least, not passively being victim to them.

The Research Psychologist, Daniel Kahneman – who won the Nobel Prize for investigating the impact of these Biases – recommends that asking challenging questions can minimise the impact Biases can have on your business’ decision-making.

Questions like:

  1. Do I think the people making this recommendation have an invested self-interest in it, are they overconfident, are they basing it on past experiences?
  2. Are the people making this recommendation objective about it, or have they fallen in love with their own idea?
  3. Is there evidence of dissenting opinions within the group of people making this recommendation, or could there be a Groupthink scenario?

An effective way to combat this within your own organisation – is to encourage open debate about ideas. It could even be a good idea to go as far as getting people to play devil’s advocate – and interrogate the possible negative repercussions of an idea.

How the proponents of an idea defend it can tell you a lot about their personal Biases – and therefore reveal how objective and realistic they have been about this idea.

It’s always a good idea to interrogate an idea. And to keep one eye open for sabre-toothed tigers!

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