Cognitive bias and small business

Comprehensive Consulting Solutions

Our brains are hardwired to try and understand the world as fast as they can. To do this, we develop cognitive biases that many of us aren’t even consciously aware of. These cognitive biases shape how we view the world, think, and make decisions daily. While they can be helpful, there are times when these biases can have a negative impact or cloud judgment in a professional setting.

What are cognitive biases?

A cognitive bias is when the brain uses subjective reasoning and perceptions to understand the world around it. Instead of taking in information objectively, it relies on personal experiences and knowledge. These shortcuts that the brain creates can create systematic errors in a person’s way of thinking and making decisions, negatively impacting how you make choices and understand things around you. Studies on cognitive biases stretch back to the 1970s and show that our biases can influence almost every aspect of our personal and professional lives.

What are the different types of cognitive biases?

There are many different types of cognitive bias. We’ll narrow it down to some of the most common examples.

1. Confirmation bias

This bias happens when we seek information that agrees with our beliefs but ignores information that supports other ideas or views. This can cause people to “tunnel-vision” on their views and not take new, possibly more influential information into account just because it goes against what they already think.

2. Self-Serving bias

This form of bias is when people believe good things happen to them because of something they did, but anything bad happens because of outside forces or people. This leads people to develop a habit of not taking personal responsibility for situations they may have caused.

3. Anchoring bias

This is also known as the anchoring effect. This refers to people focusing too much on the first piece of information they were given and not focusing on anything else they are told that may change their views or even strengthen them. This can be harmful due to it causing people to overlook other, more important information.

4. Status Quo bias

This bias stems from an inability or lack of desire for things to change. Acting with this bias could cause people to make decisions that hinder growth and progress due to settling into a mindset of “This has been working. Why change?” or not taking any new information, trends, or studies into account when making decisions.

5. Optimism and Pessimism biases

These two biases go hand in hand. Optimism bias refers to how humans envision a positive outcome when in a good mood. On the other hand, pessimism bias is how humans expect a negative outcome whenever we are in a bad mood. On both sides, this bias could lead people into not putting as much effort into the choices they’re making or tasks they’re doing because, on one side, they think it’ll go great no matter what, and on the other hand, they don’t think it will work so why try. Managing these two biases ensures effort is maintained one way or another.

6. Blind Spot bias

This bias happens when people believe they are less biased than others. This bias could cause people to ignore the views and input from others due to thinking other people hold more biases than them, therefore blocking out any information that may influence decision-making and views.

For more examples of different biases, check out these articles:

Visual Capitalist: 18 Cognitive Bias Examples

Master Class: How to Identify Cognitive Bias

Medium: Exploring Cognitive Bias in Your Business Decision Making

How do you avoid acting on cognitive biases?

Now that you know what cognitive biases are, how do you ensure you don’t accidentally act on them in your business? Learn to recognize your own biases. Figuring out your biases is the first step to overcoming them and learning how to separate them from your professional decisions. Every person has their fair share of biases, and not all will be the same. Challenge your views. Practicing your ability to challenge your own views will help you learn to avoid falling into many different biases. It causes you to look into new information on multiple sides, exposes you to new ideas, and allows you to grow an understanding of other views. If your mind isn't changed, you just come out with a stronger ground for what you already thought and can defend it better.

For more information on how to avoid cognitive bias, check out these articles:

Investopedia: How Does Cognitive Bias Affect Your Business
Learn.Genetics: The Trouble With Cognitive Bias
Harvard Business Review: Outsmart Your Own Biases

How some businesses combat cognitive bias.

The issue of cognitive bias is always something businesses are trying to overcome. This Forbes - How to Overcome Biases in Business Decision Making - article discusses how AI can, and is, being used to automate decision-making process to eliminate human error where possible. With the help of AI, businesses can scour vast amounts of data almost instantaneously and get an objective summary or result to help them make an informed decision. This is especially helpful when businesses have to make choices or understand data as quickly as possible. There is still a need for human interaction with AIs in most cases, though. People need to ensure AIs can start processes with good, trustworthy data and observe the work to ensure it goes well. Ais cannot replicate people's empathy, so humans are still vital to the social responsibility and processes of businesses.

We hope you learned more about cognitive biases and how to recognize them in your decision-making. If you need help learning how to avoid biases within your business and ensure positive growth, Comprehensive Consulting Solutions for Small Businesses can help!