The five biases that drive our decision-making - Women's Agenda

The five biases that drive our decision-making

As leaders we like to believe we ‘make’ decisions and that they’re rational. Which is why it may be surprising to learn that we’re driven by a host of biases of which we are, frankly, unaware.

Think you’re an exception? That’s one right there.

Psychologist David Myers tells us we come with an inbuilt tendency (called self-serving bias) to think we’re more intelligent, better-looking, less prejudiced, more ethical and healthier than our peers (and they think exactly the same thing about themselves).

It’s an uncomfortable thought, but knowing biases exist helps us to actively manage against them and that matters because unchecked biases are bad for business.

For example, a recent study on confirmation bias showed that investors often seek information to confirm, rather than evaluate, a belief.

In the study, investors who checked message boards paid attention to information that supported their existing belief about what would make a good investment, rather than weighing that against contrary views. The ‘confirmation’ created a sense of overconfidence that actually led to poorer investment performance overall.

This insight is gold for leaders who need to make tough decisions and suggests that incorporating rigorous ‘why’ and ‘why not’ debate into executive decision-making could have an impact on performance.

It also reinforces the importance of building a culture in which disagreement is seen not as disloyalty, but as a sign of the seriously business-minded.

One way to integrate this check-and-balance approach into corporate culture is to structure it into the selection process by making hires with different skill sets and ways of thinking.

Unfortunately, this is a key area in which unconscious bias thwarts us.

Humans have a well-documented tendency when making appointments to pick ‘people like us’. This can lead to groupthink (let’s all hop on the bandwagon), an unhealthy desire for cohesion and, at the extreme end, collusion.

Studies that emerged after the fall of US company Enron showed that many executives either actively colluded with questionable transactions or acquiesced under pressure. The need to agree with and remain part of the in-group was a strong motivator.

In Innovation Corrupted: The Origins and Legacy of Enron’s Collapse, Harvard professor Malcolm S Salter says these behaviours were powerful enough to trounce even sophisticated internal controls.

Given the massive social impacts of corporate collapse, commentators have subsequently called for the professionalisation of boards rather than historical self-selected networks, to ensure companies are run by a mix of people with complementary skills who can navigate difficulty and increase the long-term chances of success.

There’s nothing intrinsically wrong with networking, there are many advantages to working with people we know and trust or who come recommended, but businesses could be advantaged by adding qualified unknowns to the mix. Leaders who are overly reliant on the opinions of a close few seriously put themselves and the organisation at risk.

But before we bag biases, let’s remember that they exist for good reason.

Our brains are continually bombarded with inputs and without a way of filtering information and focusing attention we would be overwhelmed. As neurologist Gerald Smallberg says, bias ‘acts as a lens or filter on our perceptions… without bias to focus our attention, we would be lost in [an] endless and limitless expanse’.

Instead, acknowledging both the productive and destructive capability of bias shapes leaders who:

Are modest and less focused on being right than ensuring they make the right decisions; and
Understand that making mistakes is intrinsic to thinking and reflect that in their leadership style.

Biases that every leader needs to know about are:

Confirmation bias

As in the investor study, we look for information, and better remember information, that confirms our beliefs rather than evidence that contradicts them. This is why people with a particular political view will buy a newspaper that reflects that bias. It explains why it’s difficult to change people’s beliefs. This is why the double-blind experiment was introduced in science.

Self-serving bias

As people we attribute success to personal effort, but failure to bad luck. If we do well on a project it’s because of our skills, if we do poorly, it’s because we had a bad manager.

We also tend to overestimate our personal contribution, as do our peers. Broad awareness of this bias across a team could go a long way to diffusing conflicts when they emerge (provided, of course, they are not based in fact).

Optimism bias

Neuroscientist Tali Sharot has shown that we’re biased into thinking a bad outcome is less likely to happen to us than others. This optimism bias generates the illusion of control.

Since optimists have stronger immune systems and live longer, the value of having this bias is clear. But it can also lead to costly business mistakes. Organisations that fail to deal appropriately with sunk costs and keep throwing good money after bad because they believe the investment that has already been paid will pay off are demonstrating this bias.

Hindsight bias

‘I knew it all along’. Don’t we all. Because time goes forward and we reflect on the past and that makes us think that what happened was predictable. Hindsight bias allows us to look back on our past decisions more favourably. What if it didn’t go so well? Well, confirmation bias would ensure we don’t recall that as well as when it did go well.

Survivorship bias

If you measure the average performance of fund managers over five years then their performance is higher on average than if you had measured not just those who survived, but those who didn’t, and so left the industry. This is survivor bias and in his excellent article on the topic, David McRaney shows the enormous ramifications this can have on military decisions.

To become the kind of leader who truly ‘makes’ decisions, you need to be the kind of leader who:

  1. Consciously builds teams with diverse skill and mindsets;
  2. Creates a culture in which healthy disagreement is used to generate business rigour;
  3. Thinks critically, sourcing data that confirms and counters your view;
  4. Are focused on the best outcome rather than needing to ‘know’ answers in advance or ‘be right’; and
  5. Actively challenges personal biases even when it makes you uncomfortable.

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