Overcoming Cognitive Bias for Better Business Decision-Making: Part Two

Last year, the inqiri blog touched on the topic of cognitive bias, an important concept with a profound effect on the mind. Cognitive bias affects our ability to make rational decisions and introduces prejudices into the decision-making process. There is a significant amount of research on cognitive bias, and with a growing list of over 150 cognitive biases, it is impossible to cover the subject in great detail. Our goal is to provide a basic understanding the phenomenon of cognitive bias, and by taking a closer look at three of the more prevalent cognitive biases, make it is easier to conceptualize the value of collective intelligence in the decision-making process. Applying a structured decision-making process can overcome cognitive bias and improve business outcomes.

Let’s start with one of the most common cognitive biases – confirmation bias. Confirmation bias is the tendency to favor information that confirms a person’s beliefs or hypotheses with an unwarranted degree of confidence and tenacity. Confirmation bias, also known as perseverance of beliefs and hypothesis preservation, was the brainchild of cognitive psychologist Peter Wason.

In business, confirmation bias can occur during the hiring process, when hiring managers tend to lean towards particular candidates and shape interview questions that provides for easy answering. Kathleen M. Sutcliffe and Marlys K. Chrisitanson from the University of Michigan and the University of Toronto respectively, addressed confirmation bias in their paper, “Managing for the Unexpected.” According to Sutcliffe and Christianson, confirmation bias and other cognitive biases, “interfere with both noticing and interpreting.” Sutcliffe and Christianson suggest that “It may be easier for groups to make sense of problems, because partners make social constructions easier and because they can be an additional source of ideas and data. Interactions are critical for managing the unexpected.” The good news is that confirmation bias, a long-studied phenomenon, can be overcome, however it is necessary to remove the inclination towards these long-standing beliefs.

Availability bias involves a mental shortcut that relies on immediate examples that come to mind. In the early 1970’s Amos Tversky and Daniel Kahneman defined the availability bias in their paper, “Judgment under Uncertainty: Heuristics and Biases,”  noting, “instances of large classes are usually recalled better and faster than instances of less frequent classes.” (LINK). In business, “one may evaluate the probability that a given business venture will fail by imagining various difficulties it could encounter,” according to Tversky and Kahneman. In order to combat availability bias, it is essential to be aware of the diverse factors that impact a decision and be able to take each into account.

A third cognitive bias impeding the decision-making process is anchoring bias, the common human tendency to rely too heavily on the first piece of information offered. In an example provided by the Houston Chronicle article, “Anchoring Effects to Influence Decision Making in a Business,” Rachel Levy Sarfin writes that, “if a person must make a decision about whether the Mississippi River is longer or shorter than 20 miles, he will use the figure of 20 miles as a reference point in coming to a conclusion.” Using this numerical figure is called an anchor. It is difficult to erase such anchors after they have been placed in the mind of the decision-maker. To address the anchoring bias, it is important to provide a means in which the first pieces of information presented, the “anchors,” can be vetted against other less apparent options.

By design, the inqiri solution corrects for a number of cognitive biases, and employs a structured, objective, and rational process to evaluate decision alternatives. Using a multi-criteria decision analysis methodology combined with collective intelligence limits the potential for cognitive bias to influence the individual contributors, and provides sufficient structure to produce consistent and meaningful results.

The inqiri process significantly reduces confirmation bias by limiting exposure to other participants’ inputs and eliminating the potential to seek confirming positions. In effect, each participant works independently, and is unable to reinforce belief patterns by using other participants’ inputs as stimulus.

Availability and anchoring biases are addressed in a similar manner. By limiting the exposure to rating values, we reduce the anchoring effect, and provide no clear indication of set sizes, which would otherwise trigger availability bias. The lack of additional information requires the participant to rely on their own resources, information, and expertise. This is one of the fundamental principles of collective intelligence and creates the powerful, cognitive bias reducing properties of inqiri.

Leveraging a large population of participants by involving a company’s principle stakeholders in a streamlined decision-making process diminishes the potential for cognitive bias to become a contributing factor. The inqiri solution supports decision optimization by minimizing cognitive bias, while also providing a rigorous analysis throughout the process. In this way, the inqiri solution improves decision-making and enhances business outcomes.

For more information visit: inqiri.com.

Overcoming Cognitive Bias for Better Business Decision-Making

Paramount to the success of any business is the ability to make strategic decisions. Bad decisions will result in financial loss; the worst decisions can be fatal, even for Goliath companies.  The crux of overcoming bad decision-making is realizing what is behind those poor decisions in the first place. Understanding a pattern of deviation in judgment, known as cognitive bias, is an important first step in alleviating poor decision-making. The inqiri solution solves the issues generated by many of the common cognitive biases by removing the ability to form illogical inferences and approach a decision with a clear, concise, and systematic way. Continue reading Overcoming Cognitive Bias for Better Business Decision-Making

Shifting the Focus to Decision-making and our Solution

As we get closer to launch, we are shifting the focus of our blog posts to provide more a more explicit discussion of decision theory, the decision-making process, and how we are building these theories into a practical application with our Decision Optimization EngineTM.  We have laid the ground work in previous posts covering topics such as building a community, collaboration and crowdsourcing. All important and relevant topics, a necessary foundation that frames the future focus of our posts. Continue reading Shifting the Focus to Decision-making and our Solution