The decisions we make can have far-reaching consequences for our teams, organisations, and stakeholders. While we strive to make rational, objective decisions based on facts and data, the reality is that our minds are prone to a range of cognitive biases that can lead us astray. A study by McKinsey & Company found that biases can lead to poor decision-making in up to 50% of business decisions (Lovallo & Sibony, 2010). In this blog post, we’ll explore some of the most common biases that affect leadership decision-making and discuss strategies for recognising and mitigating their impact.
Anchoring Bias
One of the most common biases in decision-making is anchoring bias. This refers to our tendency to rely too heavily on the first piece of information we encounter when making a decision. The Journal of Behavioral Decision Making found that anchoring effects can persist even when people are aware of their influence (Wilson, Houston, Etling, & Brekke, 1996). For example, if we’re considering a new project and the first estimate we hear is £100,000, that number can become anchored in our minds and influence our perception of subsequent estimates. If a quote is significantly higher, we may write it off as too expensive, whilst a much lower quote may be perceived as offering a below standard product or service due to it’s “cheap” nature. To combat anchoring bias, leaders can seek out multiple perspectives and data points before making a decision, and actively question their own assumptions and mental models.
Availability Bias
Another bias that can skew our decision-making is availability bias, which refers to our tendency to overestimate the importance of information that is readily available or easily remembered. People are more likely to make decisions based on easily accessible information, even when that information is not the most relevant or accurate (Schwarz, 2004). For example, if we have recently read about a high-profile cyber-attack, we may overestimate the risk of a similar attack happening to our own organisation, even if the actual probability is low. To mitigate availability bias, leaders can look for a wide range of information sources, including those that may challenge their existing beliefs, and use data and statistical analysis to assess risk more objectively.
Confirmation Bias
Confirmation bias is another common pitfall in decision-making. This is our tendency to seek out information that confirms our existing beliefs and ignore information that contradicts them. People are more likely to search for and interpret information in a way that confirms their preexisting beliefs, even when presented with contradictory evidence (Hernandez & Preston, 2013). This can lead to echo chambers and groupthink. Dissenting opinions are silenced and critical information is overlooked. To combat confirmation bias, leaders can actively ask for diverse perspectives, encourage constructive debate and dissent, and create a culture of psychological safety where people feel comfortable challenging assumptions and raising concerns.
Framing Effect
Then there is the framing effect. Another bias that can influence our decisions, referring to our tendency to be swayed by how information is presented rather than the information itself. For example, if a project is framed as having a 90% chance of success, we may be more likely to approve it than if it’s framed as having a 10% chance of failure, even though the underlying risk is the same. A study by the Journal of Behavioral Finance found that people’s investment choices can be significantly influenced by the way potential outcomes are framed (Diacon & Hasseldine, 2007). To mitigate the framing effect, leaders can strive to present information in a neutral, objective way and encourage their teams to look beyond surface-level framing to the underlying facts and data.
Sunk Cost Fallacy
Finally, the sunk cost fallacy is a bias that can cause leaders to make irrational decisions based on past investments rather than future outcomes. People are more likely to continue investing in a failing project if they have already invested significant resources into it, even when the rational decision would be to abandon the project (Kwak & Park, 2020). To combat the sunk cost fallacy, leaders can establish clear decision-making criteria and processes, regularly reassess the viability of ongoing projects, and be willing to change course when necessary.
Making Better Decisions
Ultimately, making better decisions as a leader requires a combination of self-awareness, humility, and a commitment to continuous learning and improvement. By understanding the common cognitive biases that can affect our judgment and developing strategies to mitigate them, we can make more objective, evidence-based decisions that lead to better outcomes for our teams and organisations.
At The Thrive Team, we’re passionate about helping leaders develop the skills and mindsets they need to excel in business environments. Our coaching and training programs are designed to help leaders understand and overcome cognitive biases, improve their decision-making processes, and lead with greater clarity, confidence, and impact.
Whether you’re looking to enhance your own decision-making skills or build a culture of effective decision-making within your organisation, we have the expertise and experience to help you achieve your goals. Contact us today to learn more about how we can support your leadership journey.
