Are you making good decisions? The five most common types of decision bias.

When working with clients one of the first things we do is go through a discovery process. You might think clients already know everything about their business but the truth is, most companies only look at the data in one way–the way they always have. By introducing new ways to analyze the data and integrate data across functions–clients ALWAYS discover something new.  That applies to decision making.

When we look at how clients make decisions about what to do or what is working, it is amazing how many times they feel good about progress even though the data suggests something different. Why? Decision bias. As human beings, our thought processes are heavily influenced by experience, values, intuition–essentially by how we view the world. Even when faced with information that is contradictory, we are able to rationalize it in such a way as to support our preferences. Let’s look at five of the top types of decision bias. Do any of these apply to your work place?

1.  Motivation bias: This happens when the people working on a project or making the recommendation feel there is a personal benefit attached to the outcome. If the mission is to make an acquisition, and the project leader thinks they will be the one put in charge of running it, how objective do you feel they can be in the diligence process?

2. Mirror bias: When you look in the mirror, you probably like what you see or at least are used to it. If we are deciding to hire or fire, emotion and how much we like someone, almost always plays a role. It is so easy to exaggerate what we like and dismiss some of the risks and costs. We often find ourselves accepting sub standard performance or behavior from current employees as we know them and are used to it. While finding a person who is a better fit may not be easy, imagine the improvement when you do.

3. Deja vu bias: Has a similar decision been made in the past? If so, many times an decision maker’s experience is tainted by the previous experience. I had a boss once that used to claim, “humor never sells that in situation.”. Never and always are dangerous words. Times change. Execution change. People change. Every significant decision deserves to be considered on its own merits–not subjected to historical persepective as the sole input to decision making.

4. Group bias: It is not uncommon for a team to take on “group think”. If there are persuasive or powerful people working on a project, others may feel drawn to their point of view, regardless of their own experience or insight. Dissenting opinions are important to a thoroughly vetted decision.

5. Risk bias: Depending on a company culture the tendancy is to be aggressive or conservative; most companies aren’t both. However, people can be even more conservative or more aggressive depending on some of the other biases we mentioned. Most of us know from experience that forecasts are almost always overly optimistic. In the case of conservatism, you have to ask if the limited view is due to issues at the company level where  loss aversion is stronger than big opportunities. Either case, it can be a dangerous bias and one that needs to be averted.

Knowing the biases is the first step to avoiding them. The key is to ask questions of those making recommendations to tease out whether bias was at work. It is more difficult to cure yourself of bias; you may need to involve someone else to be your accountability partner–a trusted colleague, business coach or valued employee.

Better decisions improve results. A study published in McKinsey Quarterly in March 2010 found that returns were 7 points higher when companies worked to reduce the impact of decision bias. For more information on this topic join the members’ webinar scheduled for July 27. Click here for more information on membership and webinar.

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