Decision making would be a challenging task even if people could be completely logical about it, but it’s much tougher because everyone is prone to decision traps. These traps are flaws in the decision-making process that come from the mind’s tendency to follow certain routines. For minor, everyday decisions, routines come in handy. When you need to make crucial choices for your small business, it’s important to be aware of these decision traps and know how to avoid them.
Falling for Confirmation Bias
Confirmation bias is the tendency to look for and favour evidence that supports one side of an argument or decision. In business, this can lead to ill-informed decisions. For example, if you believe in a new product idea, you may subconsciously favour data supporting the idea and subject evidence against the idea too much more intense scrutiny. It seems like you’re going through a reasonable decision-making process, but your decision has already been made.
It’s natural to lean towards one option. While your gut instinct may be correct, you need to be objective in your evaluation. Try to honestly figure out if you’re comparing the evidence fairly. This is also an area where having good advisers makes a big difference. You need people who are willing to share their honest opinions, not “yes-men” who always agree with you.
Sticking to the Status Quo
One of the strongest decision biases is favouring the status quo over any alternatives that require change. People are resistant to change, even when it’s better in the long term. The status quo is the known quantity and any alternatives are unknowns. If your business always sticks to the status quo, it’s likely going to miss out on growth opportunities. Just consider where Apple would be if it stuck to computers instead of going into MP3 players, phones and tablets.
When you’re evaluating a decision, be realistic about what’s required to break away from the status quo. It’s easy to exaggerate and argue against making a change, but try to think about which option you would choose if you were starting fresh and there wasn’t a status quo option available.
The Sunk Cost Fallacy
Everyone has a fear of loss hardwired into their brain. One area where this fear of loss negatively impacts decision making is sunk costs, which are anything you’ve already paid for or committed to. When you do this, you get attached to that previous choice, because you don’t want to feel that you made the wrong decision and lost your original investment. If you released a new product that’s losing money, the sunk cost fallacy could cause you to stick with it since you already paid money to design and market it.
One effective way to avoid this is getting the opinion of those who weren’t involved in the original decision. Since they don’t have any sunk costs, they can provide an unbiased perspective.
These are a few of the most common traps that can be detrimental to your decision making. Keep those cognitive biases in mind to ensure that you’re making sound choices for your business.