10 reasons you make bad decisions

We all like to think that we are capable of making good decisions and that we weigh up the alternatives and choose the best solution … right? But the truth is we are all fairly lousy at making decisions and our judgement is often unconsciously influenced by what psychologists call, ‘cognitive biases’. Biases are a tendency to think in a particular way, which can impair your ability to exercise good judgement and act rationally and this can be a problem in business.

Here are 10 biases that can influence your judgement and rational decision making, with an example for each that you may be familiar with:

1 – Attentional Bias

You may be about to make a crucial decision, but rather than weigh up all of the options you concentrate upon a few and ignore the others. For example, you might believe that all product failures are down to poor marketing and so you overly concentrate upon those factors and ignore the product quality issues that were the real cause.

2 – Bandwagon Effect

Everybody else is doing it, so I should be doing it too, even if I don’t believe it. For example, the boss just made a decision which sucks, but everyone else around the table is agreeing with him, so I’ll just jump on the bandwagon and agree, even though I know from my own experience that it is doomed to fail.

3 – Confirmation Bias

Rather than trying to weigh up the evidence and then make a decision, instead you make up your mind beforehand and then go and get the evidence to fit that pre-existing judgement. For example, I’ve been asked to provide evidence to support the sales forecast for my pet project, so I ignore all of the contradictory information and I only give the boss the data that upholds my figures.

4 – Curse of Knowledge

A tendency for the smart people on the team to fail to understand the perspective of those less educated than they are. For example, the new PhD on the sales team dismissed the idea of using a shopping channel, just because he wouldn’t buy from it himself.

5 – Decoy Effect

Making an option seem better, by presenting the decision-maker with another unfavourable option that puts the original in a more favourable light. For example, the sales agent wanted to influence us to buy the house, so they showed us another property that was in the same price bracket, but it was in such a bad neighbourhood that it made the first one look much better.

6 – Functional Fixedness

Thinking that something can only be used in a specific way, just because that is how it has always been done, thereby missing the potential for alternative uses. For example, Product A had only ever been sold into the home improvement market since the company began, so the marketing team didn’t spot the opportunity to sell into the gift market, which had been picked up by one of our competitors.

7 – Gambler’s Fallacy

A belief that future events are influenced by the past, where the reality is that the probability of the outcome remains unaltered. For example, the sales team had one all five of the previous pitches, but their lax attitude to the sixth resulted in failure, despite their assurance that it was a certainty because of the previous successes.

8 – Hindsight Bias

Believing that something was inevitable, after it had happened. For example, Jeff announced to the team that he had never believed all long that the merger would ever happen, despite everyone remembering him as being its most staunch advocate in the beginning.

9 – IKEA Effect

The tendency to place a greater value on things that you have been involved in creating, regardless of the quality of the resulting item. For example, Jane was reluctant to agree to the discontinuation of the product, despite the overwhelming evidence that sales had tanked, because she had headed up the original team that brought it to market.

10 – Loss Aversion

A tendency to view the avoidance of losses as more powerful than realising gains. For example, the board was reluctant to sell the loss-making factory, despite forecasts which suggested we would return to profit in a couple of years.

Do you see yourself as having ever been influenced by any of these biases?

Published in collaboration with LinkedIn

Author: Will Trevor is the Founder and Training Consultant at Windsor Training

Image: Aletsch glacier, the largest glacier in the Swiss Alps is seen on August 18, 2007. REUTERS/Stefan Wermuth