Make better business decisions: 4 common cognitive biases to avoid

You know that feeling when something isn’t quite right, can you trust it? Everyone has an inbuilt ‘gut feeling’. It doesn’t matter what you’re deciding, it could be a high stakes business deal or simply choosing what you’ll wear today. This sixth sense silently guides us.

However, while making these unconscious decisions we can fall victim to several cognitive biases. A cognitive bias is the result of a systematic error in thinking which occurs when people process and interpret information, affecting their decisions and judgements. They can prejudice our choices – our instinct for survival can mean that we miss out on risks that are worth taking.

This is especially true in the workplace. As a small business owner, working in stressful or time-sensitive situations, you can’t examine every decision for it’s hidden influences.

Knowing these common cognitive biases can help you identify what goes into your decision process and help you to make more rational choices.

Table of contents

  1. Illusory Correlation Bias
  2. Availability bias
  3. Confirmation bias
  4. How can you make better decisions?

1. Illusory Correlation Bias

We take on a huge amount of information on a daily basis. In order to make sense of it all, our brains work to find commonalities that can help us make quick and accurate judgements.

Unfortunately, this is not without its own problems. As its name suggests, this bias means we can make connections between things that really have no effect on each other. This can be anything from wearing your lucky shirt when your team is playing, to crossing your fingers for good luck.

In business this can unintentionally cause us to stereotype or disregard the facts, even when the evidence is right in front of us. This is why some new online hiring platforms are looking to remove discriminatory bias in hiring by removing the names, ages and photographs from candidate applications.

2. Availability bias

Availability bias tells us that we are likely to make a decision based on the information that is easiest to remember.

Like all these biases, this one can come up when you are rushed or stressed. Which supplier was cheaper? How did I set up this up last time? There’s probably a better way to…

When running a small business, you can feel like a ‘jack of all trades’. Trying to save time can mean we get stuck in our ways, doing things in a tried and tested method. Stopping to spend time making repetitive tasks more efficient can be difficult in the short term. Once in place, it can save both work and time in the long run, which can then be put into the actual running of your business instead.

3. Confirmation bias

We are all guilty of this one. Confirmation bias is only taking in information that agrees with what we already believe. We can be our own worst enemies when looking for the cold hard facts.

This could be in politics, people or business. If we think something won’t work then we’ll only see things that support that belief. The opposite is also true; the pet project you have been working on looks fantastic through your rose-tinted glasses right until it flops.

Take time to step out of your own shoes and examine other points of view. When you are too close to something, it can be hard to see the faults. There are many ways to get an outside opinion. Consultants, customer feedback, colleagues, friends and family can all provide a new perspective on whatever challenge you are facing. Sometimes a fresh pair of eyes is all it needs to find the solution.

4. How can you make better decisions?

We get that you can’t pull out a whole chart of biases every time a decision needs to be made. That’s why we use hard data and powerful algorithms to delve into what makes your business tick.

If in doubt, the numbers don’t lie.

A great example of this is one of our users who runs a restaurant. The owner was having a hard time trying to balance the books. Their business costs were rising, week on week, by a large amount. It was really starting to add up but there was no clear indication of what was the cause.

As it was the busy season they had a lot of extra staff. With a heavy heart, the owner decided that resourcing must be where the money was going and was about to let some people go.

The data analytics provided by Vonto’s app was able to identify a slight increase in the cost price of salmon. Around the same time the Head Chef had added four new and popular salmon dishes to the menu. This was causing the dent in overheads.

Taking a step back, the owner was able to utilise data to make a more rational decision rather than focusing solely on their gut feeling. If they had cut staff then it would have certainly impacted customer experience. Using the massive amount of data that every business has available can help to make considered and informed decisions.

The takeaway

We all make a shocking 35,000 choices each day, many of these unconscious.. Trusting your gut instinct can be valuable because no one will know your business like you. However, take time to consider what else might be affecting your decisions.

Looking at a particular challenge from a fresh perspective, or with greater insight into the facts, can help you find new and creative solutions.

We want to support businesses to make the best, most informed decisions possible. Check out our free app that plugs in to all of your business tools and serves you daily insights on your entire operation.

In these uncertain times, data is the new currency. This currency is only valuable if you use it.