5 Biases That Lead to Bad Decisions

Part One

A growing body of research reveals that our behavior and decisions are influenced by an array of strong psychological undercurrents, all of which are more powerful and pervasive than we realize.

Like streams, they converge to become even more powerful.

By charting these undercurrents and their unanticipated effects, we can identify our faulty thinking that lead us to make irrational decisions.

Despite a great need for them, judgment and decision-making skills are only beginning to appear in better business schools’ curricula. But studies show we still don’t know enough about how good decisions occur.

Rational versus Emotional?

Psychologist and political scientist Herbert Simon in 1957 laid the groundwork on the limits of rationality when he attacked classical economics and game theory. Simon’s work made it clear that we must take the real world’s messiness and irrationality into account when making decisions.

“Research indicates that people are myopic in their decisions, may lack skill in predicting their future tastes, and can be led to erroneous choices by fallible memory and incorrect evaluations of past experiences” wrote psychologist and Nobel Prize laureate Daniel Kahneman.

Neuroscientific research also proves that the brain is influenced by subconscious emotional reactions from its more primitive centers. We’re not in control of our reasoning capabilities as much as we’d like to think.

Scientists have identified several flaws in how we think when making decisions. Because they’re hardwired into our thinking process, we often fail to recognize them. This means they can undermine everything from new product development to acquisitions and divestiture strategy to succession planning.

These hidden currents and forces include:

•  Loss aversion, our tendency to go to great lengths to avoid possible losses
• Commitment, our tendency to stick with the status quo
• Value attribution, our inclination to imbue a person or thing with certain qualities based on initial perceived value
• Diagnosis bias, our blindness to all evidence that contradicts our initial assessment of a person or situation
• Certainty bias, where overconfidence leads us to discount inconvenient truths

Each of us is susceptible to irrational behavior’s irresistible pull. Only when we gain insight into our irrationality can we see the extent to which it affects our work and personal lives. Fascinating patterns emerge, and we can master our behaviors and decisions when we connect the dots.

Over the next few blog posts, we will discuss each of these currents and forces.  Bookmark us and come back tomorrow!