How to Avoid Cognitive Biases in Business Decision Making

A cognitive bias is a deficiency, an error in the way we process information. We’re all guilty, at times, of letting our cognitive (thinking) biases cloud rational decision making. Good business decision making will sometimes come from “the gut” unexplained–at least to some–ways of reaching decisions. That said, rational decision making based on good data will, over the long run, result in better decisions and more business growth.

thinking girl

One of the most destructive cognitive biases I’ve seen in my experience in working with hundreds of business owners a year is called the confirmation bias. This is selectively filtering all information through our preconceived ideas and not accepting information or ideas that challenge our existing set of beliefs. For example, I’ve seen businesses continue to advertise in phone directories, because “we’ve always done that, and it’s the best way to reach people.” I also see this a lot with business owners who stick to online marketing ideas that are 5-10 years old and no longer effective.

Another one cognitive bias is the post-purchase rationalization. I see this a lot when a business owner spends a lot of money on some ineffective marketing (like newspaper ads or paying an online marketing company for something not understood very well) and then, after there are very few sales, rationalizing the spend by saying, “Well, it was brand building. Sales will come later.” They won’t.

A third cognitive bias that can be very detrimental for business decision making is the negativity effect, which is when people hear a negative story, often in the news or anecdotally from a friend, and then completely miss the good, the big picture. I see this a lot with social media marketing. It’s impossible to avoid stories of poor data protection and then avoid–just because of this–any social media marketing. Or, they see their children “wasting time” on social media and assume it’s all a waste of time.

How to Avoid Cognitive Biases in Business Decisions

  1. Learn what they are. At a very minimum, understand confirmation, post-purchase rationalization, negativity, gambler’s, projection, anchoring, and selective attention biases. I’d also look at descriptions of logical fallacies.
  2. Have a confidant. I know many business owners who have set themselves as the first, last and only source of the decision-making process. This is especially true for men. Everyone needs to have a confidant, a sounding board, someone who can speak honestly, and even let the boss know he wrong.
  3. Encourage creative decision-making. Define a problem or a goal and assign a small group of employees to brainstorm, research and present options.
  4. Start with questions when you talk with employees, customers and suppliers. We’re trying to do this. What your ideas? We have a problem with this. How can we resolve it?
  5. Keep an open door policy. Many business owners, even though they might not fully recognize it, create a workplace atmosphere that does not welcome or accept any back-and-forth on decision making. It’s all top-down. Employees, after they feel they have no voice, are bound to withhold valuable data or alternative perspectives, which, over time, can be very detrimental to the health of the organization.
  6. Have someone outside the organization that will provide truthful feedback and support. A good friend, drinking buddy, spouse or childhood friend will often give honest feedback.
  7. Seek data and information from a wide range of sources. If you want to get better at your online marketing read widely and include magazines, non-commercial websites, and vendor websites. Subscribe to some online marketing podcasts. Talk to people in your community that have done well. Talk to vendors, but be careful not to move into the position that makes you look like you’re looking for free consulting.
  8. Make a chart with your rationale for your decisions and keep a column for counter-points and reasons why your idea might not work.
  9. Be willing to question all your assumptions. “We’ve always done it this way.” “I heard a story about online crime on the news last night.” “My friend’s brother’s wife said…” If these are your reasons, dig deeper; look for firmer ground.
  10. Learn from past mistakes. Making a mistake once is, of course, something we all do every day. Making the same mistakes again and again shows a lack of learning and ability to look in the mirror and change and grow.

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