The fragile nature of human decision making and how to overcome our cognitive biases
Which dress to wear? What to have for lunch? When to enter a new market? Where to open a new store? How to attract new customers?
Whether they are personal or professional, we make many decisions every single day – some are simple, others are more complex. Sometimes we make good decisions, sometimes bad.
However, one thing that all humans tend to do when making decisions is to use mental shortcuts.
Why is that?
Because we probably wouldn’t do much in a day if we had to think through every possible scenario for every possible decision. So we employ heuristics – mental shortcuts that help us to solve problems and make decisions quickly and efficiently.
And therein lies the problem – heuristics lead to cognitive biases.
Cognitive biases happen on a subconscious level often as a result of our brains attempt to simplify information processing.
All decisions are based on beliefs, values and emotions, and are therefore vulnerable to human bias.
So we employ heuristics – mental shortcuts that help us to solve problems and make decisions quickly and efficiently. And therein lies the problem – heuristics lead to cognitive biases
If you are an executive you are expected to make many business decisions – preferably good ones!
However, the reality is that sometimes you may also make bad decisions.
But why would that be if you are objective, logical and capable of taking in and evaluating all the information that is available to you?
Well… while logical fallacies stem from an error in a logical argument, a cognitive bias is rooted in thought processing errors often arising from our subconscious mind.
The human brain is hardwired in such a way that we are all prone to a variety of unconscious psychological biases and errors.
Therefore, it’s easy to confuse cognitive biases with logical fallacies.
Add to it that all humans actively use their emotions when making decisions, falling into the cognitive bias trap without even noticing is far easier than we may think.
Such psychological pitfalls not only affect our decisions but also our everyday interactions by preventing us from fully understanding other people.
Being aware of our cognitive biases can make a difference.
Here are five cognitive biases to make us aware of how these subconscious mental processes may threaten our objectivity and judgement when making decisions.
1. Confirmation bias
Humans are sometimes too fixed in our opinions. This bias occurs when you seek out information you agree with and ignore or minimize information you don’t agree with.
You may seek out evidence that confirms your beliefs while simply ignoring the evidence in support of the new information.
Antidote: To be on the safe side you should consider actively seeking counterarguments to your position before making decisions.
2. Loss-gain bias
Losses loom larger than gains. Humans are averse to loss which follows that a loss has a bigger influence on our decision making than gains.
If you are really risk-averse you are more likely to take the guaranteed way than to take a risk, even if that risk may be more profitable. Your ability to rationalise is diminished, preventing you from clearly weighing the pros and cons of a potential investment.
Antidote: To avoid complacency, recognise how this cognitive bias shapes your behaviour. Develop a more accurate sense of what risk really means when making your decisions.
3. Choice –support bias
Why do we ignore information that doesn’t support our desires? We do it subconsciously because when we choose something, say investing in a new technology, we tend to feel positive about it, even if the choice has flaws.
When we feel positive, endorphins are being released into the bloodstream, provoking a sense of excitement and happiness.
Antidote: Think hard about all the reasons for your choice and what real results you can get from it.
4. Stress-influence tendency bias
High levels of stress produces adrenaline that prompts us to faster and more extreme reactions.
When this happens we tend to rely more on faulty heuristics rather than methodical thinking. It can also trigger other cognitive biases such as doubt-avoidance bias that happens because we are so stressed that we don’t know what to do, so we make very quick decisions in order to avoid this feeling.
The problem is that complex decisions are very vulnerable to this bias which can lead to bad outcomes.
Antidote: Practice calmness, think about how much time you have to react and what happens if you don’t act before then. You may have more time to think than you expected.
5. Self-Serving Bias
The self-serving bias acts as a defence mechanism that protects our self-esteem. This bias increases a tendency to blame external forces when bad things happen and give ourselves credit when good things happen.
For example, we might blame low seasonal sales on a period of bad weather, when in fact the root cause lies elsewhere.
Antidote: An honest appraisal of you system belief, deeper self-awareness and continually checking the health of your business helps counteract this bias.