Minimising decision-making biases

Managers like to think that the decisions they make are objective and rational and have been executed taking into consideration all the pertinent facts. In reality, many other forces come into play when making a decision such that most decisions are usually subjective, irrational and have been made with only limited information. As Wolf explains in his HBR blog post of September 2012, “How to minimise your biases when making decisions”, it is mainly inherent biases which cause decisions to be sub-optimal. Accordingly, in order to optimise decisions, biases have to be recognised and then minimised.
 

Here’s a summary of decision-making biases and how to overcome them followed by further considerations (et alors).

Minimising decision-making biases

Drawing on studies from Rosenzweig, Kahneman and Schoemaker, there are six principle decision-making biases noted as follows:
 

Anchoring

If expecting the same outcome as before, contradictory data tends to be ignored or omitted. This becomes more acute with numbers which are difficult to “adjust away” from.

·         To overcome anchoring, “seek diverse outside opinion to counter overconfidence”.

Framing

How a situation is presented affects the decision. In addition and generally, the pain of losing is perceived to be more powerful than the pleasure of winning.

·         To overcome framing, inverse the perspective from positive to negative or vice versa.

Availability Heuristic

Vivid and easily imaginable events (even if uncommon) along with recent events are weighted disproportionately higher than unimaginable or past events.

·         To overcome availability heuristic, “search relentlessly for potentially relevant or disconfirming evidence”.

Confirmation Bias

Initial decisions become self-fulfilling prophecies. Data is collected after the event to justify the decision (similar to anchoring).

·         To overcome confirmation bias, accept a “chief contrarian” as part of the team.

Commitment Escalation

It is difficult to accept “failure” and start again from scratch; instead, previous commitments tend to influence current decisions.

·         To overcome commitment escalation, ignore the old problem by clearly redefining the new problem.

Hindsight Bias

Once something is known, it is difficult to remember when it was not known. This can make it more difficult to learn from failures (as it is now “obvious”).

·         To overcome hindsight bias, reward due process (and in particular “lessons learnt”) rather than penalising failure.

Et alors

How many organisations do not penalise failure in one way or another? The above decision-making biases are compiled at the individual level but despite the best efforts of any individual, decision-making biases can easily become “institutionalised” in an organisation. All of the biases noted above can reinforce organisational culture: for example, it would be a very brave individual who could go to the board of Kodak in the early 1990s and tell them that photographic film was doomed and they should start preparing for an exit (yet look what happened)! On a collective basis, a lot of the biases could be compiled into one key tenet, namely “groupthink”. On the other side, the one concept which seems to appear as the solution on a collective level is “diversity”! To optimise the decision-making process and overcome decision-making biases, make sure the team making the decision is diverse! The process might seem to be more "painful" but the end-result should be a higher quality decision!