2017-02-15 00:00:00Decision MakingEnglishLearn about a variety of common decision biases, and see how each one can apply to business operations.https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/06/Business-Owners-Discuss-With-Others-To-Avoid-Decision-Biases.jpghttps://quickbooks.intuit.com/ca/resources/decision-making/5-decision-biases-avoid-business/5 Decision Biases to Avoid in Business

5 Decision Biases to Avoid in Business

2 min read

A decision bias is a mistake in decision making due to improper reasoning, evaluation, remembering, or simply personal preference. Since people make many decisions every day, it is vitally important that small business owners and employees understand decision biases that frequently occur. Simply being aware of certain decision biases may be enough to help mitigate their risks.

Anchoring Bias

“Anchoring” refers to a person’s bias to be over-reliant on the first piece of information they come across on an issue. For example, in salary negotiations for a new employee, the conversation and process will likely be based on the first number that either side of the table brings up. That first number serves as the anchor for possible salary ranges and adjustments to those ranges, when in fact, it may be completely inaccurate.

Information Bias

Information bias is the tendency to seek out and gather more information when that information does not actually affect further actions, predictions, or analysis. For example, when analyzing the potential market for a new product, it is possible to make an accurate decision about the product by gathering data on three metrics. However, an employee may spend an unnecessary amount of time gathering data on 10 metrics when a more accurate decision can be made with less information. In analysis scenarios, business owners need to be aware of this bias to save energy, time, and money.

Ostrich Effect

The ostrich effect is the tendency for people to ignore a negative situation. The term gets its name from the myth that ostriches bury their heads in the sand to avoid dangerous situations. Employees may ignore negative situations with co-workers, bosses, customers, or vendors, simply because they don’t want to deal with them. A good technique to deal with employees may be to ask them specifically about these ostrich situations on a regular basis.

Social Desirability Bias

Social desirability bias refers to over-reporting socially desirable characteristics or behaviours in oneself and under-reporting less desirable characteristics or behaviours. In business, this can often arise during employee self-evaluations. Perhaps an employee will report a high level of proficiency with a certain software, great teamwork skills, and a surpassed production quota – but that same report fails to accurately indicate how often the employee arrived late to the office and the number of mistakes the employee made over the past quarter.

Overconfidence Bias

The overconfidence bias refers to people’s overconfidence in their own abilities, performance, level of control, chances of success, and reliability of judgment. Overconfidence in the workplace can lead to a variety of problems and even accidents. When discussing projects and timelines with employees and deciding on success metrics, it may be wise to be more conservative; the overconfidence bias will likely affect metric values. These are just five decision biases among hundreds that have been identified and researched. Understanding decision biases can mean a significant difference in analyzing progress and encouraging the successful development of a small business.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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