Bias is easy to expose when you’re debating someone. But what about when you’re debating yourself? When you’re caught between two ideas or a decision, how do you know if you’re giving both options a fair shake, versus rushing into a decision that you may feel strongly about?
Cognitive bias in your business is a dangerous thing because it severely narrows your scope of perception. Anything that goes against your bias receives an immediate discount—even if it’s completely valid and appropriate. This can lead to poor decision making and mistakes, even in the most intentioned individuals.
Uncovering cognitive bias
The first step in preventing cognitive bias from hindering your business is identifying it. Unfortunately, bias comes in many forms and it’s important to consider carefully where you may be falling into it:
- Anchoring bias occurs when you make decisions based on a specific piece of information you believe to be more important than the entire scope of information.
- Availability bias occurs when you assume something will happen and base your decision making on an event that hasn’t yet happened.
- Confirmation bias happens when you only consider opinions and data that supports your hypothesis, instead of both supporting and conflicting information.
- Hindsight bias generally occurs when you make statements about events that have already happened to support a hypothesis formed about them after they already occurred.
- Hot-hand bias occurs when you ignore evidence and information in favor of your gut feeling, based on recent successes (data-driven or not).
- Loss aversion bias is prevalent in people who focus solely on risk and not reward, assuming a decision will invariably result in loss.
- Optimism bias is the tendency of an individual to not seriously consider the negatives of a situation and focus too heavily on the positives.
- Ostrich bias is the tendency to avoid bad news and unsavory situations at all costs, often making decisions that avoid them by creating more bad news.
- Sunk cost bias is the inability to move past a loss and instead, fixate on trying to salvage it or turn it into a positive.
- Third-person bias is the fallacy that you’re unaffected by things in the same way other people are, therefore you know better and can discount their contribution.
There’s a lot of bias to be had! The good news is, bias can be undone no matter what form it takes. A person just has to understand the thinking traps they fall into and how to actively avoid them in the future.
Developing critical thinking
Once you have a handle on where you’re prone to bias, combating those tendencies becomes a matter of employing unbiased thinking techniques:
- Argument dissection will help you stop to consider more options outside of your bias. By dissecting other viewpoints, you may also end up unraveling your bias.
- Structured debate encourages you to find someone who has the opposite viewpoint you do and listen to their argument, while also posing your own.
- Force field analysis makes you stop and consider the variables at play, to make sure you’re accounting for all of them and not just a select few.
- Redefinition of the problem encourages you to re-frame the decision you need to make with a new context, to get you to consider a new angle and possible outcomes.
- Key assumption checks make you look past your first or best assumption, to see if the motives of your decision hold up without a single central argument.
Critical thinking exercises are also made invariably better by a dedicated red team: a group of individuals who challenge your ideas to play devil’s advocate. By forcing you to always reconsider and always second guess your decisions, they’ll help you locate and combat bias that may have cropped up in your thought processes.
Decisions and ideas may feel right in your gut, but unless they’re checked and vetted, they’re nothing more than bias. Exposing your own bias tendencies and taking steps to squash them will go a long way towards helping you become a better decision maker and making the decisions that benefit your business.
Content was prepared by an independent journalist under the direction of Molly Grubb AIF®, CBEC®. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy, and it should not be regarded as a complete analysis of any subjects discussed. A professional advisor should be consulted before any investment decisions are made. All expressions of opinion reflect the judgment of the author on the date of post and are subject to change.
Grubb Wealth Management is registered as an investment adviser and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by securities regulators nor does it indicate that the adviser has attained a particular level of skill or ability.