We all like to believe ourselves to be open minded pillars of logical thinking – that when it comes time to make the decisions that are important, we will approach the issue with the detached clarity of thought required to weigh up all the evidence and reach the correct decision.
The reality however is sharply different. We are all emotional creatures and can easily allow those emotions to affect our judgement. In addition, we are often a victim of unconscious thought processes that can further act to sabotage the process. These thoughts often go unnoticed but can have an even greater impact on our decisions than the conscious choices we are aware of.
At the core of these unconscious processes are our own natural biases – a tendency to rely on existing beliefs and rituals that we “know to be true.” Sometimes these biases are accurate and have been determined after countless examples that have led to their confirmation. Other biases however have been formed on something of a whim, often created from arbitrary thought processes that have not been fully tested.
Its important to recognize these biases and consider their effect when reaching any conclusions. Here are a few of the key ones you need to be aware of:
Optimism Bias – While a glass half full approach can be a positive way to see the world, this can be dangerous if it affects your ability to recognize potential pitfalls. I often see this displayed when clients look to start new stores or purchase existing businesses. There is often a tendency to think things will go better than they necessarily will, the thrill of a new challenge can lead to a focus on potential upsides while ignoring the downside risks. A focus on historical results and performance here can help reduce the impact of this happening.
Social Proof – Our response to a situation often feeds off the actions of others. Marketers know this, using the time-honored traditions of testimonials and endorsements to help promote product lines. This can however work against you if others don’t know any more than you. An endorsement may seem persuasive, but at the end of the day what does a sporting star really know about insurance? Relying on others who have no more knowledge than you can lead to bad decisions. Always question the results others have achieved before relying on their knowledge and beliefs.
Confirmation Bias – Once we make up our mind, we tend to stick to it, often because pride can make it difficult to admit we may have been wrong. This bias can result in a reluctance to accept new information that disproves existing beliefs and only embrace that which confirms the status quo. This is particularly dangerous in the world of the internet where algorithms will often feed you more of what it thinks you want. Every belief should be open to revisiting, and new information should always be evaluated.
Loss Aversion Bias – Hand in hand with confirmation bias is a tendency to not take action when we begrudgingly acknowledge the facts are different. This loss aversion can lead to us continuing down a pathway hoping for a changed result rather than being prepared to cut our losses. I’ve seen many business owners continue a failed product line or continue to operate a store that has never turned a profit in the belief that “something will change.” Unfortunately, sometimes it doesn’t.
Being aware of these biases can help you formulate your decision process much more effectively. I recommend using them as a checklist whenever a decision is made.
