Most Dangerous Biases When Making Business Decisions

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You can’t be in business without making decisions. You probably make hundreds of decisions every day, most of which are made quickly without too much thought.

The problem is that, when we allow our subconscious to make decisions for us, we often fall victim to the biases to which it defaults. You see, our brains are hard-wired to make the easiest selection from the options available to us. In some contexts, that could mean trouble…

1. Stereotypes

Stereotyping is making an assumption about an individual based on your perception of the group to which the individual belongs. It is impossible to make all decisions without stereotypes (i.e. buying a product from a salesperson without associating that salesperson with his or her industry). However, you can run into major ethical and productivity issues by stereotyping people. You may, for example, have assumptions about how well certain ethnic groups perform tasks and assign a task to an individual within that group for which he or she is unqualified. As much as you can, avoid stereotypes and judge individuals on their individual merit.

2. Anchoring (Halo Effect)

Anchoring is isolating one characteristic in an individual and emphasizing it to such an extent that you apply your perception of it to all other characteristics in the individual. Also known as the Halo Effect, this bias can be either positive or negative. For example, you see that someone has a nice smile and assume that she is smart, friendly, hard-working, good with numbers, and whatever other characteristics you feel inclined to associate with the smile. On the other hand, you may see someone with a stain on his shirt and assume that he is lazy, unintelligent, and a poor speaker. Try not to read too much into individual characteristics. Focus on the whole.

3. Confirmation bias

Confirmation bias consists of looking for information to justify the decision you are already planning to make. This happens a lot in job interviews. Interviewees already plan on hiring a candidate, so they ask questions that allow the candidate to present himself in a positive light. Or, they feel as if they won’t hire the candidate so they ask questions that force the candidate to focus on her deficiencies. Avoid confirmation bias and approach each situation with an open mind.

4. Primacy effect

The primacy effect is all about first impressions. It is judging all interactions with an individual through the lens of your initial interaction with that individual. The problem, of course, is that an employee, coworker, or boss, may just be having a bad day when you initially encounter them. Because your perception going forward will be tainted and inaccurate, you may miss opportunities to complete a great project together or grow a beneficial relationship.

5. Recency effect

Opposite of the primacy effect is the recency effect — forming an opinion about an individual based on your most recent interaction with that individual. This happens quite frequently in performance reviews. An employee made a costly mistake two weeks ago and you, the manager, disregard her previous six months of hard work and initiative. Or, vice versa, the employee won a key account two weeks ago and it causes you to disregard her complete lack of performance in the previous six months. To avoid falling prey to this bias, keep great records and look at the historical data — not just your intuition — when making decisions.

6. Contrast effect

The contrast effect occurs when you alter the weight of a decision based on a recently-encountered sharp contrast. For example, a supplier may be showing you two different packages for her product. One may have very limited features at a low price. The second may have excessively more features at a slightly higher price. You buy the second package, because you see it as compared only to the first package. To avoid becoming a victim of this bias, view each option in a decision as one of many rather than comparing them to one other option.

7. Just-world hypothesis

The just-world hypothesis involves the refusal to accept a scenario based on your perception of fairness. It involves the assumption that life is fair and, if there is any deviation from that fairness, something must be to blame. This often occurs when measuring the performance of sales teams. Suppose a sales team has particularly poor performance one quarter. Management may assume that it’s their fault because, in a just world, their efforts would be producing results. In reality, though, there simply may be a decline in the industry or in the entire economy. A better assumption to operate under is that life isn’t always fair.

8. Selection bias

Selection bias occurs in collecting samples for statistical analysis. If the data is too concentrated in one area and not random enough, the statistical analysis will be faulty. For example, if you are trying to measure employee satisfaction but only ask employees from one department, you are skewing the results toward the perceptions of that department. Be as meticulous as possible in making your statistics unbiased. Good data produces good results. Bad data is a waste of resources.

9. Harshness, leniency and central tendency biases

These biases involve your own personal tendency in making decisions. Do you naturally take a more adversarial, easy-going, or middle-ground approach to making decisions? For example, when hiring an employee, you may be unfairly harsh in your assessment of a candidate’s answers to your question while another hiring manager may be overly lenient. The candidate you interviewed may actually be more qualified for the job but, because of your biases, the candidate that the other manager interviewed will actually get it. When making decisions, don’t rely on your own discretion. Instead, have an external list of qualifications or metrics that determine whether or not to go in a given direction.

10. Selective perception

Selective perception involves the influence your expectations have over your decision-making. For example, you may expect certain employees to perform poorly and therefore perceive their performance as poor due to your expectation. This one is really hard to avoid, but you can start by asking yourself what you intuitively believe will be the outcome in any decision and then play the devil’s advocate with yourself.

11. Similar-to-me bias

This one is exactly what it sounds like — showing partiality to those who are similar to you. It can lead to poor decisions in hiring employees as well as suppliers. Just because someone shares common interest doesn’t mean she is the right one for the job.

12. Zero-sum heuristic

The zero-sum heuristic has to do with assuming that everything is a zero-sum game, even when it isn’t. Let’s say, for example, that you have a really high-performer on your sales team. You may view the other salespeople as being incapable of performing equally as well, because the top performer has already taken an excessive share of customers. In reality, there are plenty of customers to go around.

We all have lapses in judgment, but those of us in business have people who are depending on us to do things right. It’s helpful to at least be aware of the tricks our minds are playing on us. See anything on the list that you’re particularly guilty of?

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