3 Cognitive Biases that are Hurting Your Business

Our will is not our own — it belongs to our cognitive biases. Here is how to cope.

When I studied neuroscience at McGill University, cognitive biases were served up as side-dishes to the bigger cognitive functions. Now as a marketing consultant, I work with more and more business owners, investors and founders, and I can’t help but notice trends that come up again and again. Cognitive biases are standing in the way of good business decisions, and at the end of bad-decision street I see entrepreneurs wondering what went wrong. Cognitive biases can’t take all the blame, but it’s worth understanding how your brain is working against you — and how to beat it at its own game.

Cognitive biases are not all bad

Cognitive science, put bluntly, is a study of the workings of the mind. Throughout evolution, our brains have developed ‘shortcuts’ that have been great for survival, but don’t do us justice when it comes to innovating. That’s because our brains are conditioned to make decisions quickly and efficiently, sticking to what we know.

Cognitive biases exist to block innovation

Since our brains prefer to avoid uncertainty, and like to use our previous experience as an ‘anchoring’ point, our brains have the power to steer us away from optimal decisions. Results? Less creative thoughts and decisions, the feeling of being ‘stuck,’ the disappointment of failing to stand out.

These hindering biases are often subconscious — we do not become aware of these biases, until we are. Below are 3 common suspects, and how to recognize them. Once you learn to check your biases, you will be able to move past them, and will become better at recognizing them in your coworkers.

Availability Heuristic

Ask yourself — which is safer for travel, planes or trains? Immediately your brain will invoke examples from recent stories you read, movies you’ve seen, and conversations you’ve had. Based on this experience, you may (incorrectly) assert that trains are safer. When it comes to making judgment about relative risk or danger, our brains rely on an availability heuristic (or shortcut) to make quick decisions.

Now imagine a business scenario — you are looking to reprice a product. Our thinking is often strongly influenced by what is personally most relevant, recent or dramatic. This means your own shopping experience is entering the picture. On the surface, this sounds OK — until you consider that your marketing team’s shopping experience is also in play, and these can be dramatically different. Most importantly, your customers’ experiences will drive their purchasing decisions. Fear is another strong driver of the availability heuristic — what if we price too high and don’t sell any? What if we underprice?

The danger of the availability heuristic is that it may influence the way you interpret data that you use to determine your pricing model. How to get around this? Encourage storytelling along your statistics. When you expose the experiences driving someone’s conviction, it is easier to tease out emotion from fact. But don’t undervalue the stories — you can use the heuristic to your advantage by innovating in ways that are concurrent with your customers’ experiences.

Our brains have the power to steer us away from optimal decisions.

Focusing Effect

“Focus on one metric that truly matters.” Yes…but no. Human brain prefers to deal with one thing at a time. That is why the focusing effect can be so dangerous — we are prone of losing sight of other, perhaps more meaningful metrics.

For example, a client of mine wanted to focus on new user acquisition. The only metric they cared about was growth of new users. As long as there was an upward trend, they were convinced their business was growing. What they failed to consider was the trade off their devoted users were experiencing — a dip in customer service, lack of attention and feeling alienated. The new users may never become as engaged or grossing as the established users my client was losing. So while the user count was growing, the quality of the user base was deteriorating.

You are probably rolling your eyes, thinking, ‘well obviously.’ But this situation is a lot harder to spot without having a bird eye’s view, and a good understanding of your business ‘ecosystem.’ This is especially a challenge for smaller businesses without dedicated resources to pay attention to every pillar of the business model.

Solution — probing questions and system thinking. Challenge yourself with questions like:

  • Why is this metric important to us as a business?

  • Why is it important to me personally? Am I trying to prove someone wrong/right?

  • How will this decision impact my business in the long term? What is the trade-off? How will I mitigate the results of this trade off, and can we afford the mitigation (in terms of money, reputation, manpower, long-term impacts, etc.)?

Pro-Innovation Bias

Type ‘how to innovate my business’ into Google, and you are diving deep into the rabbit hole of tips, tricks, strategies and models. Pro-innovation bias is a bias towards applying every new innovation without fully understanding its impact on your business or its purpose. You see novelty and ‘newness’ as inherently good, regardless of potential negative impacts (inequality, elitism, environmental damage etc) resulting in new ideas and concepts generated being judged as more valuable than they are.

The danger? Instead of strengthening the foundation of your ‘house’ you are only concerned with adding the latest add-ons, until your ‘house’ becomes so convoluted and unstable, you can no longer live in it.

Mitigate this bias by asking yourself, what would the situation look like if the bias didn’t exist? What problem would this new innovation solve? How would this make our business better? Create pros and cons lists and consider the costs of adoption vs. impact on your business.

Bottom Line

By challenging your biases, your ability to make good business decisions and innovate your business improves significantly. As we’ve seen, cognitive biases can both hold you back or send you chasing every opportunity indiscriminately. Large companies have people and mechanisms in place to battle these biases, but in growing businesses with a limited number of decision makers, the onus is on the decision maker to challenge their assumptions and ‘gut feelings.’ So I challenge you to challenge yourself.