Avoiding common cognitive biases is essential for making better business decisions at speed.
Post-Covid return-to-office initiatives have been making headlines. From JPMorgan Chase to Amazon, Dell to Disney, companies are trying to fill expensive, underused offices and promote collaboration. But are these decisions driven by data – or by bias?
Amazon’s chief executive Andy Jassy mandated a return to office back in 2023, emphasizing his personal belief in the benefits of in-person work. This move came despite internal surveys showing that many employees preferred remote work and reported high productivity levels when working from home. Jassy’s reliance on personal conviction, while dismissing contrary evidence, is a classic case of confirmation bias – favoring information that aligns with pre-existing beliefs.
No one is immune to cognitive bias. These patterns of thought are often ingrained in human thinking. However, they can lead to poor business decisions – and expensive errors. Here are five common biases.
Confirmation bias Leaders favor information that supports their beliefs, overlooking contradictory evidence. It’s the two colleagues conversing: one says, “Did you read my email explaining confirmation bias?” and the other replies, “Yes, it proved what I already knew.” For example, a chief executive who’s committed to digital transformation might only focus on positive reports while disregarding warnings of potential pitfalls.
Anchoring bias This occurs when people rely too heavily on the first piece of information they receive (the anchor) when making decisions. If you are told that a project is estimated to cost $5 million but further work then reveals it will cost $10 million, you may resist the new price – because you are anchored to the initial estimate.
Availability bias Decisions are influenced by recent or vivid experiences rather than full data sets. In the 2010s, Brazil’s Itau bank built risk models that assumed the country’s previous economic growth would continue – but then the Great Brazilian Recession struck, lasting from 2014-2016. The bank suffered substantial losses because it had assumed that the 10 years prior to 2014 were representative of the long term.
Groupthink The desire for harmony within teams can suppress dissent and lead to suboptimal decisions. Team members may hesitate to speak up and challenge the prevailing consensus.
Correlation bias Leaders confuse correlation with causation. During the 2008 financial crisis, many banks assumed that real-estate prices moved independently of stocks, bonds and commodities. Even if real estate crashed, ran their thinking, these other markets would not be impacted – they could therefore take more real-estate risk, because only part of a diversified portfolio would go down if a crash came. When everything fell together, banks faced massive losses and required huge government bailouts.
How to avoid cognitive biases
To combat confirmation bias, leaders should seek out contrary opinions, encouraging open debate and diversity of thought during strategic discussions. To guard against anchoring bias, never be 100% certain about anything. Critically reassess early assumptions and urge teams to independently evaluate options. To minimize availability bias, question whether recent events are one-offs or part of a trend. Pausing to reflect supports more balanced thinking.
Preventing groupthink requires leaders to foster psychological safety. Leaders must explicitly welcome criticism and challenge. Appoint ‘devil’s advocates’ during decision-making processes to challenge prevailing views. And to avoid correlation bias, rigorously analyze data and remain cautious in drawing causal conclusions. Just because butter consumption correlates with divorce rates in Maine doesn’t mean one causes the other.
Addressing these five biases doesn’t eliminate decision-making risk. But it dramatically improves decision quality – essential for a fast-moving world.
