Cognitive biases are mental shortcuts and systematic errors in thinking that affect our judgements. By simplifying information, they enable faster decision-making, but the quality of our decisions often suffers.
Biases touch all aspects of our lives, from our social behaviour to our purchasing choices. Aware of them or not, they impact us all, even more so when we are stressed or multitasking. Imagine a CEO under pressure from several directions — staff, lawyers, board members, and family. The mental and emotional toll that comes from balancing high-stakes priorities pushes them to rely more heavily on cognitive biases, or System 1 thinking as termed by psychologist, Nobel Prize winner, and pioneer of research into biases Daniel Kahneman.
System 1 thinking is fast. It leans on intuition and assumption, and its pull is so powerful that leaders often ignore careful research and consideration from their team and ‘shoot from the hip’ when making a decision. Having sunk hours of work into preparation only to have it pushed aside in favour of biases and hierarchy is frustrating and disheartening for team members. But in many organizations, that is precisely how decisions are made.
That’s not to say decision-makers are doing this consciously or purposefully. No one can eliminate the role of bias in decision-making with pure will. Instead, organizations need to reshape the decision-making process, which is typically hierarchical, and build an intentional choice architecture that can act as a failsafe, minimizing the influence of biases.
Can You Overcome Bias?
When bias wins, the organization loses. Cognitive biases are not founded in research, fact, data, or analysis. Instead, they are quick-fix mechanisms our brains use to conserve energy — they provide a path of least resistance that leads to a near-enough-is-good-enough destination.
So, how can businesses mitigate the effects of bias? They must be aware. While awareness alone is not enough, it is an important first step in mitigating the risk biases pose to organizational decision-making.
Biases and related fallacies are varied and ever-present. Here are several to note:
- Base rate fallacy: When provided with a choice between emotional or personal information and objective or statistical information, we tend to ignore the latter and allocate more value to the former. For example, a decision-maker may reject an opportunity with a high statistical likelihood of success because of a personal experience.
- Commitment bias: We tend to remain committed to our past decisions even if doing so will have adverse outcomes. This is a particularly powerful bias when past decisions are made public. For example, a CEO may decide to develop a new product. When research and feedback indicate the product won’t be successful, the CEO insists the team follows through to launch.
- Confirmation bias: We tend to notice, value, and focus on information that aligns with our existing beliefs, and we often ignore or de-value information that contradicts our beliefs. For example, a team leader might decide on a particular promotion strategy without scrutinizing evidence or seeking alternative approaches because it worked in the past.
- Functional fixedness: We struggle to innovate or be creative when solving problems. The name of the functional fixedness bias comes from our inability to see alternative uses for conventional objects — i.e., their function is fixed. This bias could prevent team members from seeing alternative uses for an existing product or ways to add value to an existing service.
- Framing effect: Our decisions are influenced by the way the evidence is shown to us. For example, a decision-maker might commit to an initiative because a favourite team member suggested it.
- Illusion of control: We tend to believe we have more control over events, other people, and the future than we really do. For example, decision-makers may believe they have (at least some) control over variables impacting the success of an initiative, even the variables that are 100 percent determined by random chance.
- Hyperbolic discounting: We are inclined to choose smaller immediate rewards over larger future rewards. Leaders may choose quick-win solutions (for example, using paid advertising to increase website traffic) instead of long-term investments (for example, leveraging search engine optimization to build organic website traffic).
Biases and fallacies work together to preserve mental energy and deliver a fast outcome. In the process, we tend to narrow our thinking. We form a narrative around one possible outcome, one possible objective, and one available option. For example, say a CEO is deciding whether to expand into the Japanese market. The outcome is business success in a new market, the objective is international expansion, and the option is Japan. This narrow thinking tricks the CEO into thinking they have sufficient information to make a decision, so they move forward with confidence.
However, the CEO has failed to consider other outcomes (for example, increasing the company’s market share nationally), other objectives (for example, increased revenue), and other options (for example, expanding into Mexico).
Our tendency to think narrowly affects our ability to forecast. For example, the CEO might project that by expanding into Japan, the company will increase sales by 10 percent. A more conservative CEO might hedge their bet: by expanding into Japan, there is a 75 percent chance the company will increase sales by 5 to 15 percent.
In reality, projections that aren’t founded on data alone are skewed by our own desire to succeed — it’s the confirmation bias (among others) in action.
One study exploring this phenomenon revealed how appealing to our ‘inner crowd’ can help us overcome our inaccurate, bias-driven forecasts. Participants were asked to make guesses about historical dates. They were told their initial guess was incorrect and asked to make a second guess. While the second guess was no more accurate than the first, the average of the two guesses was.
In addition to awareness, companies should cultivate a data and numerically literate culture. In such a culture, the use of data analysis and insights during the decision-making process is best practice, and employees are empowered with real-time visibility and analytics tools. Crucially, numbers are valued and underpin judgements. They are not trumped by assumptions or intuitions, an outcome easier said than done.
To protect data from the influence of bias, the decision-making process should be standardized with purpose-built choice architecture. Remember, regardless of our level of awareness, we can’t will our biases away. Instead, we need to reshape how decisions are made using bias-limiting systems and decision-making apparatuses.
Five Ways to Cultivate a Culture of Data-Driven Decision-Making
Data-driven decision-making can be game-changing. According to a Forrester Consulting study, data-driven companies are 58 percent more likely to exceed their revenue goals than their peers.
But culture shifts don’t happen overnight. They take time and buy-in. Here are five ways to foster a culture of data-driven decision-making in your organization.
Hold Thoughtful Meetings
Meetings have increased in length and frequency over the past five decades. Today’s average executive spends almost 23 hours each week in meetings, compared to less than 10 hours in the 1960s. Worse yet, just 11 percent of employees say that all meetings are productive.
Of course, you can’t forgo meetings altogether. Instead, meetings should be:
- Intentional, with a purpose or objective to achieve
- Discussion-based, to allow a diverse cross-section of ideas, opinions, and insights to be heard
- Structured, to ensure a data-informed decision is made
Amazon, for example, has ditched the tried-and-true PowerPoint presentation, opting instead for ‘study hall’ at the start of each meeting. Staff are given a six-page memo and 30 minutes to read it before the discussion begins. Memos are not sent in advance, as employees may not find the time to read it before the meeting.
There are several benefits to Amazon’s unorthodox meeting approach:
- Where slideshow presentations feature brief bullet points, a six-page memo requires the author to think through their message, share relevant data, and express it all with clarity.
- Attendees are forced to take in all information before asking questions. In addition, presenters may be in the process of figuring out what they want to say during the presentation, often sharing unfinished ideas. The memo system mitigates this risk, ensuring the meeting is productive.
- The memo paves the way for informed debate and decision-making underpinned by current and accurate information.
Free Your Mavericks
In the below video, six people pass basketballs around — three people in white T-shirts and three in black T-shirts. Your job is to count the number of passes made by the people wearing white. Give it a go.
Did you notice the gorilla? About halfway through the video, a gorilla walks into the frame, pounds his chest, and exits. If you didn’t see it, you’re not alone. About 50 percent of people fail to notice the gorilla.
The invisible gorilla experiment demonstrates how narrowly some people view the world when focused. Your job, as a leader, is to identify the people in your organization who see what others don’t, who spot the elusive gorilla in every situation without fail.
These people are your mavericks, independent thinkers who can see the wood for the trees. By empowering them to share their insight and make decisions outside the purview of the usual executive decision-making process, you can avoid the bias trap. Here are some ways you can free your mavericks:
- Consider their feedback, even (especially) if it goes against your beliefs or gut instinct.
- Award them the flexibility to deliver work their way. Mavericks know their value and get immense satisfaction when problem-solving on their own terms.
- Provide positive and constructive feedback. Mavericks are often competitive and aim to one-up themselves. For this reason, they can be incredibly responsive to critique.
Another way to free your mavericks is to give them decision-making power. Organizational decision-making is traditionally hierarchical. The people at the top make decisions because they are at the top, not because they have more information about contributing variables or the resources required to execute.
By pushing decision-making authority closer to the execution team, you increase their sense of responsibility and workplace engagement. Highly engaged employees deliver significantly better outcomes, are more likely to stay with their organization, and experience less burnout.
You could even allocate a percentage of a team’s work to your maverick’s ideas. For example, official work might take up 80 percent of a team’s capacity, and maverick bets might take up the remaining 20 percent.
Seek Competing Solutions
People rarely consider more than one idea for a strategic problem. Even more seldom do they draw on ideas from a diverse range of sources and probe each one to see which gain traction. Unfortunately, this encourages groupthink and closes the organization off to opportunities.
One quick way to inspire the exploration of alternative ideas is to avoid yes-no framing. For example, a manager might ask, ‘Should we run a Facebook ad campaign?’ They are looking for a yes or no answer. However, they aren’t questioning whether Facebook is the right platform or whether a paid ad campaign is the best use of the marketing budget. This is the functional fixedness bias in play, and it results in cognitive rigidity, the opposite of flexible and innovative thinking.
For example, you might ask for three approaches to generating interest in a new product, forcing your team to undertake a more substantial investigation. It also gives your team the freedom to provide unusual ideas alongside the more traditional.
Test Multiple Ideas
Encouraging multiple solutions to a strategic problem is one-half of the story. The second is dedicating time and resources to testing more than one idea. The goal is to remove assumptions and personal preferences from the evaluation process and allow data and feedback to do the convincing.
These tests can be small-scale and cheap to run. Customer surveys, usability testing tools, and A/B tests can all provide valuable insights. Or, you can use joint evaluation. This involves factoring in what you will miss out on by making a certain decision.
A Yale study asked participants the following question: Would you buy a copy of an entertaining movie for $14.99? Three in four said yes. However, the number of ‘yes’ responders dropped to 55 percent when they were explicitly told they could buy the movie or hold onto the money for other purchases. Considering what the responders were missing greatly reduced the number of yesses.
A general guideline is to throw away more ideas than you accept — but be systematic about it. Don’t come up with additional ideas for the sake of it. A field of mediocrity is of no use. Instead, continue probing a problem after the first strong idea is developed. Then, keep track of all possible solutions, even those that don’t make the final cut. They may prove useful in the future.
Seek an Outsider’s Perspective
Have you ever proofread an important email only to spot a typo after hitting send? It happens. When we get too close to our work, we miss critical details, and that’s why adopting an outsider’s perspective is key to gaining clarity and making sound decisions.
Imagine you are leading an initiative to open a new brick-and-mortar store. You’ve developed a detailed roadmap, uncovered what you believe to be the perfect location, and researched potential contractors. In short, you are confident. But you only have an insider’s view of your project, and insiders tend to be overly optimistic.
To avoid the planning fallacy (subconsciously writing a narrative of success despite the fact your odds of failing are high), you need an outsider’s perspective, one driven by cold, hard facts. For example, data might reveal that your company’s existing brick-and-mortar store underperforms its eCommerce site by 40 percent. Would you advise a friend to embark on the new store initiative or invest more into eCommerce with those figures in mind?
Is It Possible to Overcome Biases?
No. You can’t overcome biases entirely. Even the world’s smartest people and most competent business leaders fall victim when making judgements and decisions. Perhaps the most famous example is Albert Einstein’s life-long mission to uncover the Unified Field Theory. In the eyes of his colleagues, the pursuit was futile, a waste of Einstein’s genius.
But you can manage biases. You can anticipate them and build decision-making processes and a data-focused culture that stays one step ahead.
If you’re not sure where to start, IncrementOne can help. We can support you as you realign your organization, become more resilient, and improve the integrity of your decision-making process. Contact us today to schedule a consultation.