How Biases Influence Poor Decision-Making
Successful decision-making is a blend of both analytical and intuitive thinking that makes a subjective process as objective as possible. The journey toward an objective analysis requires an understanding of biases that influence final decisions. Here are four biases that can hurt a business:
1. Confirmation Bias
This means favoring information that supports a preferred outcome. The airline industry has some of the tightest margins and worst economics in terms of return on capital. So many companies function under the misconception that if they just get the economics right, everything else will fall into place. For Qantas, this led to decision-making that ignored the customer experience in place of cost control, handing other airlines that addressed this need a competitive edge.
2. Fallacy of Centrality
This bias is the result of a leader thinking he has all the pertinent information to make a decision simply because he’s the leader. GM appears to have fallen prey to this fallacy. Even after the beating the U.S. automotive market received after the Global Financial Crisis and the Great Recession, it still saw itself at the center of the manufacturing economy. Assuming it had all the data necessary to lead, it continued to produce defective cars.
3. Availability Bias
This bias is widespread throughout organizations — regardless of size. It occurs when individuals make decisions based on whatever information is available, even if it’s inaccurate or incomplete.
A person working under availability bias might do a poor job of identifying risks associated with a decision, usually due to severe time constraints or performance pressures. Unfortunately, many organizations reward this behavior by promoting people who make rapid decisions with as little data as possible and manage to guess right.
4. Adaptive Bias
Employees are sometimes forced to make up for the deficiencies that arise when those operating under availability bias get it wrong. They reason adaptively, rather than truthfully or rationally, as a way to reduce the overall cost of cognitive errors. This addresses uncertainty with concrete action and is basically a higher level of self-preservation.