Are biased decisions damaging your results?
Bias may seem a vague concept for business, but people’s biases cause massive errors in business decisions, including communication decisions. Therefore we need to be aware of the most common biases and how to counter them in planning and preparing for major activities.
Experts believe around 75% of major decision-making in business goes wrong due to unperceived biases. Similar problem rates occur in communication projects. For instance, decisions to launch new products often stem from action-oriented biases (discussed below): “three out of four launches fail to meet revenue expectations and many result in significant losses“. Likewise with major issues – people may feel impelled to act because they feel they need to be seen to do something, whereas a non-response may be a better way forward.
What are biases?
We intuitively believe we understand biases. Just look at all those biased decisions of referees and umpires in sports – as well as all those biased politicians! Biases are also present in many aspects of important business decision-making.
A bias is a person’s strong inclination of the mind or a preconceived opinion about something or someone that can shape their decisions. Biases cause people to behave in a particular way, influenced by psychological, social, or physiological factors. Biases are often subconscious and illogical.
Everyone has biases. We see them in other people all around us – more than 50 biases have been identified – and yet we tend to be blind to our own biases (this is a form of bias in itself – overconfidence).
Why do communicators need to understand biases?
If you are a communication manager – either internal or as a consulting account manager – an understanding of biases helps you to be more aware of the possible flaws in your own decision-making process, and to use this better understanding to produce better decisions.
If you attend executive committee meetings and strategic planning sessions in your role as a manager, you can use your knowledge of biases to better understand decision-making at the top levels in your organization, including the politics involved. This enables you to help shape the handling of biases at the top levels – for better outcomes. It also helps you respond knowledgeably to business proposals from consultants, in which you can detect biases in their assumptions.
If you are a staff member, you will better understand the biases of the people in your team, including your boss, and you will be able to influence decision-making for the better in your area by referring to the guidance in this article.
At what point in decision-making do you check for bias?
The best point to minimize bias during the decision process for a business proposal is when you decide what information needs collecting. Although bias can be deliberate, it is usually found when people just try to avoid information overload, and make quick, inadequate judgments on what information is needed. To counter this tendency, ensure the process is systematic and the information is high quality.
Otherwise you may rely on your previous experience to guide your search. This earlier experience may bias your judgment and may lead you in the wrong direction.
If others know the answer you want as their leader, this contaminates the whole process. It can mean people persist with a bad idea because they know their leader supports it. Further discussion on this below.
Debiasing is difficult
Knowing we have certain biases isn’t enough. Many people recognize that biases have a massive impact on decision making, but don’t act to minimize the impact. Leaders know that any procedure they put in place to minimize bias is going to allow their judgment to be questioned during the normal process of decision making. And whether they’re fully aware of it or not, they don’t really want their decisions and choices questioned.
The two most common business biases
In big companies, biased decision making can cost billions of dollars, and sometimes causes the business to collapse. In communication projects, biased decisions resulting in poor outcomes can hit the bottom line, undermine the reputation of you and your organization, possibly lead to chunks taken from your future budgets, and perhaps cost your job. The two most common biases in major decisions are the confirmation bias and the overconfidence bias.
As discussed below, confirmation bias is our unconscious tendency to attach more weight than we should to information that is consistent with our beliefs, hypotheses, and recent experiences – and to discount information that contradicts them.
The overconfidence bias often makes people misjudge their own abilities as well as the competencies of the business. It leads them to take risks they shouldn’t take, in the mistaken belief they will be able to control outcomes. Nobel-prize-winning psychologist Daniel Kahneman says overconfidence is the bias he’d eliminate first if he had a magic wand: “It’s ubiquitous, particularly among men, the wealthy, and
even experts.” Overconfidence is not a universal phenomenon — it depends on factors including
culture and personality — but the chances are good that you’re more confident about each step of the
decision-making process than you ought to be.
This conclusion is backed up by the latest research, which basically confirms “a little learning is a dangerous thing” – a little knowledge and experience about something replaces beginners’ caution with a false sense of competence. Executives who learn a little about something become overconfident. This undermines the quality of their decision-making on that topic.
Five categories of decision-making bias
1. Action-oriented biases
These biases drive us to take action with less thought than we should – even at the highest levels. Just look at this opinion headline in The New York Times on 14 April 2018:
The Problem With U.S. Foreign Policy? The Urge to ‘Do Something’. The establishment in Washington thinks that every problem requires action. Sometimes the best option is doing nothing at all.”
Action-oriented biases include:
- Excessive optimism about outcomes and the tendency to underestimate the chances of negative results, eg “a study found that 80% of executives believe their product stands out against the competition – but only 8% of customers agree.“
- Overconfidence in our own or the group’s ability to affect the future (discussed above).
- Competitor neglect – failing to sufficiently analyze and therefore underestimating the caliber and responses of competitors.
2. Interest biases
These arise due to conflicting incentives, including non-financial incentives and emotional attachments.
- Misaligned individual incentives. People lean towards views or actively seek outcomes favorable to their department, business unit or themselves, at the expense of the organization. These ‘silo thinking’ views can be held genuinely as well as cynically.
- Inappropriate attachments. Emotional attachment to people, existing products or parts of the business misaligned to current or future business needs.
- Out-of-kilter perception of corporate goals and objectives. Misaligned importance of, and misinterpreted, goals and objectives. Such perceptions may be unspoken.
3. Pattern-recognition biases
These cause people to recognize patterns even where they don’t exist.
- Confirmation bias. We like to prove ourselves right and we do that through seeking information and people who reinforce our beliefs. This is made even easier with social media and ‘fake news’. Evidence evidence to the contrary is ignored or not considered sufficiently. This bias includes failure to search impartially for evidence.
- Subjective experience. Generalizing from a single or a small number of examples that are particularly recent or memorable. These are unlikely to represent a general trend: “The plural of anecdote is not data”.
- False analogies. Faulty thinking based on wrong perceptions and the mistaken treatment of different things as similar.
4. Stability biases
These create a tendency to take no action when faced by uncertainty.
- Anchoring. We rely too heavily on the first piece of information, thus ‘anchoring’ later decisions on that first piece and giving it more influence than it justifies. For instance, the starting figure in a negotiation on project costs, or salary, etc. The ‘recommended retail price’ printed on many products is just an anchor.
- Status quo bias. Preference to stick with the current situation when there is no immediate pressure to change. Time pressures or even laziness might lead to this.
- Loss aversion. The tendency to feel losses more strongly than equivalent gains, making us more risk-averse than would be justified logically. People are not efficient cost/benefit calculators. We tend to overvalue losses and undervalue gains. In other words, losses are more painful than gains are pleasurable. Therefore, if you want to convince someone about something, don’t focus on the advantages so much – instead highlight how it helps them avoid the disadvantages.
- The sunk-cost fallacy. “Throwing good money after bad” – We allow unrecoverable past costs of a project, program or activity to influence decisions on future courses of action.
5. Social biases
These happen when people prefer harmony over argument or even constructive challenging and questioning within groups, especially during meetings.
- Groupthink. Desire for consensus at the cost of a realistic appraisal of alternative courses of action.
- Sunflower management. Tendency of groups to align with the views of their leaders, whether stated or assumed views.
Strategy for tackling decision biases
- Diagnose. Analyze recent and past individual or group decisions, especially the ones that have been criticized in hindsight as biased. Consider the politics of the situation, and how you would tactfully propose to introduce ‘debiasing’ steps into the mix. You could circulate any of the McKinsey articles referred to below to other members of the committee or team. Try to find commentary about flawed decisions in your industry, which have been very costly, and which have most likely resulted from biased decision-making. You can send a questionnaire to relevant people briefly asking them to nominate any decisions they believe have been biased. Discuss their perception of the impact of the biases they have raised. You can take steps to preserve their anonymity due to the possible sensitivity of some of the issues, so they are not directly confronting their boss about these issues.
- Design. Get your team together (possibly with external advisers) in an off-site meeting to discuss ways to develop more awareness of biases in your area’s decision making. As a group, you could discuss and review the 15 business biases listed above. Decide which biases are the most important to your situation and focus on them rather than spreading yourselves too thin.
- Implement. Nominate a senior change champion to maintain debiasing momentum. Establish a record of the key reasons each major project is approved, and document the results achieved over time. Again, seek input from participants into the extent to which they think in hindsight any of the major decisions have been biased. Hold regular meetings to discuss this issue and introduction of relevant techniques outlined below.
Techniques to generally reduce decision bias
- Pre-mortem analysis. Get your team members to imagine themselves in a future where the decision has failed, and to think in ‘prospective hindsight’ what failed and why.
- ‘Devil’s advocate’/formal challenger/independent observer. This person confronts biasing behavior actively and specifically. A team can also perform the job of challenging the main findings. This approach depends heavily on the alertness and capability of people in the selected role.
- Confidential voting. Every person can thus challenge the group without any social pressure. Apps etc can be used for efficient voting.
- Textual analysis. Review and perhaps score all evaluations of the proposal by group members. Again, this can be done confidentially to avoid groupthink and sunflower management.
- Scenario planning activity. This can be used to expand the range of assumptions behind a plan. Only do this with major proposals because it can be labor-intensive to plan and conduct.
- War games. You can put members of your team into your competitors’ shoes so they fight your initiative, probably revealing new marketplace responses you have not considered. Could be a fun activity in some ways.
Tips on countering specific biases
- Test strategies under a range of scenarios. Don’t give your team or more senior decision makers 3 options because they will probably go for the middle one. Therefore always provide a final choice of 2 or 4 options.
- Add 20-25% more downside to the most pessimistic scenario. We are more likely to be over-optimistic, so allow more for the outcome to be less than perfect.
- Build more flexibility and options into your strategy to allow more for uncertainty. Be skeptical of strategies based on certainty.
The status quo bias
- The easy way out is to change nothing or change little. A solution is to conduct a risk analysis on the ‘do nothing’ option as rigorously as to a change option.
- Present the brain with a number, such as a budget total, and then ask it to estimate a figure for something completely unrelated, and it will tend to anchor its estimate on that first number. Therefore, carefully examine the way in which comparison budget numbers are presented to decision makers. Their perception of a reasonable cost will be influenced by the first number/s they see or discuss relating to the budget, to previous projects or to similar projects elsewhere.
- When a team has seen and heard a business proposal, never let the most senior person in the room speak first about the proposal – because sunflowers follow the trajectory of the sun. In other words, once the sun (the leader) speaks, the flower (the others) follow. Team members are more likely to adopt the senior person’s position, which may even be different from their own preferred position, once the senior person has expressed an opinion.
False consensus incorporates several of the biases listed above. People tend to over-estimate the extent to which others share their views, beliefs, and experiences – the false consensus effect. False consensus often leads managers to overlook important threats to their organizations and to persist with failing strategies. Research shows many causes, including:
- Confirmation bias (as above). The tendency to seek out opinions and facts that support our own beliefs and conclusions.
- Selective recall. The habit of remembering only facts and experiences that reinforce our assumptions.
- Biased evaluation. The quick acceptance of evidence that supports our conclusions, while subjecting contradictory evidence to tough evaluation and almost certain rejection. For example, we often attribute hostile motives to critics, or question their competence.
- Groupthink (as above). The pressure to agree with others in team-based cultures.
Examples of false consensus
- “Our team is 100% behind the new strategy.” (Groupthink)
- “All the senior executives are fully supportive and they all agree with our strategy.” (False consensus)
- “I’ve only heard good things from customers and dealers about our new product range.” (Selective experience and selective recall)
- “OK, so some reviewers are still negative, but they don’t understand our business.” (Biased evaluation)
How to minimize false consensus
- Create a culture of challenge in your area. Value open and constructive criticism. Seek contrary views, after checking that opposing views have been well researched. Don’t automatically attribute bad intentions or a lack of understanding from the critics.
- Ensure strong checks and balances control the dominant role models. Be particularly wary of people with strong characters who dismiss challenges to their own proposals. Insist that these proposals are independently reviewed by internal or external experts.
- Don’t ‘lead the witness.’ Instead of asking for support for your strategy, ask for detailed criticism. Review key assumptions in the analysis of the project being proposed, and look for data that contradicts parts of the proposal. Establish a ‘challenger team’ to identify flaws in the strategy being proposed.
“Safeguarding your decision-making process against bias”
If you wish to actively follow up on reducing the cost of biased decision making in your organization, McKinsey consultants have developed two simple, strategic initiatives to help people tackle business bias:
- “Decision-making checklist” of questions just requiring “yes” or “no” responses. This is in two parts: (a) “Consideration of different points of view”and (b) “Consideration of downside risk.”
- “Screening matrix” suggesting your broad courses of action based solely on your “yes” answers from the decision-making checklist. Refer below for the checklist and matrix.
Detailed instructions are in the article, “Are you ready to decide” (free subscription access) by McKinsey consultants Philip Meissner, Olivier Sibony, and Torsten Wulf.
If you don’t have the resources to follow up all the points in the checklist, you can simply use it as a guide to review your own situation, and can follow up as you see fit on any of these questions and on the broad courses of action suggested in the matrix.
McKinsey consultants have written several expert articles that discuss bias in strategic decision making. You can read these at mckinsey.com (free subscription access):
- “Are you ready to decide?” April 2015
- “Behavioral science in business: Nudging, debiasing, and managing the irrational mind” February 2018
- “Hidden flaws in strategy” May 2003
- “How biases, politics and egos trump good strategy” January 2018
- “How to test your decision-making instincts” May 2010
- “Strategic decisions: when can you trust your gut?” March 2010
- “Strategy to beat the odds” February 2018
- “The business logic in debiasing” May 2017
- “The case for behavioral strategy” March 2010
Plus online Harvard Business Review articles (paid subscription):
- “Decision making: 3 ways to improve your decision making,” Harvard Business Review (hbr.org), January 2018.
- “Research: Learning a little about something makes us overconfident,” Harvard Business Review (hbr.org), March 2018.
- “Why most product launches fail,” Harvard Business Review (hbr.org), April 2011.