Decision-making is heavily affected by bias. Biases can cause us to overlook facts, reframe issues, and distort our perception of the world around us to fit what we are consciously or unconsciously trying to see. This can lead to many decisions that have negative impacts on companies. While it is not possible to be completely free of bias, this article sets forth some ways to recognize bias and reduce the likelihood that it will negatively affect decision-making.

The Nature of Bias

Bias is a predisposition to see ourselves and the world in a certain way. This is an extraordinarily powerful mental inclination that significantly impacts, and often completely defines, how we think and how we act. Many people and companies are more products of their biases than external events.

The classic illustration of bias is how we view liquid that partially fills a glass. Is the glass half-full or half-empty? How we view the glass is often a reflection, not of what is in the glass, but how we are inclined to see the world.

Differences in ways of seeing are highly consequential.

Differences in ways of seeing are highly consequential. A person who sees a glass as half full may be inclined to take an optimistic view of many things in life. This inclination begins to shape not only how we think but the actions that we take. These steps increasingly mark out a path that deviates significantly from paths created by other perspectives. Biases can become not only signposts on the path but the path itself.

Biases can become not only signposts on the path but the path itself.

Conscious and Unconscious Biases

To define types of bias is a trap, because definitions of bias are themselves necessarily biased. It is a circle that is impossible to completely escape from. In reality, biases are built on a combination of factors often unique to each person. Yet, some general statements about bias can be made.

Conscious bias. One type of bias is one we are consciously aware of and act on. An example of this bias is assuming that tall people are good at basketball and deliberately picking people over a certain height to be members of the basketball team. Another bias may be assuming that products from some countries are better than products from others.

Conscious bias may or may not be correlated with facts related to an underlying perspective. People may be biased to purchase a certain type of car because it consistently wins awards or a person likes the car’s design or performance. Other people may continue to buy a car based on the bias that it is good when the facts objectively demonstrate that that viewpoint is incorrect. Biases can persist even though the facts related to the bias substantially change.

Biases often persist even though the facts related to the biases substantially change.

Unconscious bias. An unconscious bias is a bias that influences our thinking without our being aware of it. When we form opinions or make decisions, we may think we are looking at something with an open mind, but in reality, we are already predisposed to see something in a certain way. When we see the world, what we think we are looking at is often a reflection of ourselves.

The Bases of Bias

There are several reasons why biases exist and why they can be so challenging to identify and eliminate.

An aid to process reality. Life requires us to make a continuous stream of decisions, and it would be extremely difficult to function without some way of sorting facts and circumstances into pre-created categories that can be organized and processed rapidly.

Assume, for example, that we had to analyze every single item of food to determine whether or not it was safe. Without some types of bias (food sold in supermarkets is safe, food cooked at high temperatures kills bacteria, food kept in a refrigerator can be kept for a certain period), each meal would take an extraordinarily long period of time. Bias reduces the time necessary to carry out certain activities, which creates more time for other activities necessary to live and enrich our lives.

Reflection of our surroundings. Another reason that biases exist is because they are natural consequences of being surrounded by certain perspectives for a long period. For example, assume that we grow up in a family that likes a particular sports team. Hearing the preference for this sports team year after year can, whether we realize it or not, significantly increase the likelihood of viewing opposing sports teams negatively. Biases resulting from external factors can be based not only on our families but also on our communities and our countries. Every type and combination of external cues can become the basis for basis.

In-group/out-group biases. Biases are often formed based on who we perceive as “like us” and “not like us.” This can lead to favoritism towards groups or things that are part of our in-group and discrimination against things that are not.

Reflection of our experiences. Biases are also a product of our experiences. Assume that a person travels to an excellent restaurant but because the waiter is rude, the person has a negative experience. This experience can heavily influence not only their view of the restaurant but perhaps even similar restaurants or where the restaurant is located. Biases often have a compounding quality.

Biases have a compounding quality and lead to extending the bias to an increasingly wider set of related facts and circumstances.

Confirmation bias. Another factor that strengthens bias is confirmation bias, which is the tendency to seek out facts or look at facts in a way that confirms our bias. For example, assume that we think that flying is very dangerous. Even if only a tiny fraction of airplanes have accidents, we might put an excessive amount of weight on accidents rather than consider a broader range of flying statistics when forming a view of flight safety.

Neurological factors. Neurological factors, such as those that trigger fear and other emotions, can also play an essential role in forming unconscious biases.

The Impact of Bias on Businesses

Bias can affect every type of business activity.

Data analysis. The first area where bias occurs repeatedly is data analysis.

First, this includes what data is selected for analysis. What data is relevant to whether an employee should be promoted? The number of hours worked? The amount of sales? The number of positive reviews from coworkers? Different data sets lead to different answers.

The second way that bias affects businesses is how data is interpreted. Biases can lead to many types of data manipulation that can affect conclusions, such as:

• data time frames
• what data is emphasized; and
• data that is not consistent with conclusions drawn from data.

Dealing with people. The second area where bias has a very large impact is in dealing with people. Biases can lead to many conclusions about the people we interact with, including:

• whether we perceive them as trustworthy
• whether we perceive them as competent or incompetent
• how we evaluate their attitude towards us; and
• how we assess their work.

Strategic analysis. Strategy creation is often heavily affected by bias. Bias often affects:

• the types of opportunities and risks we see
• the perception of our ability to take advantage of those opportunities or the likelihood that we will be negatively affected by those risks
• the steps we view as necessary to take advantage of opportunities or defend ourselves from risks;
• our perception of the costs associated with strategy initiatives; and
• strategy implementation timelines.

Steps to Limit Bias

Taking the following steps can help to reduce the negative impact of bias.

Try to identify existing biases. The first step in bias reduction is identifying conscious biases and why they exist. While many people assume that biases come from ideas, they can also be generated from factors such as how decisions are made. For example, decisions always made “at the last minute” increase the likelihood that bias will play a more significant role in the decision-making process.

One of the strongest ways to identify decision-making bias is to keep a written record of when, how, and why decisions are made. This can help identify persistent patterns and biases in decision-making that go unnoticed when decisions are analyzed individually.

Create a strong decision-making team. Biases can be reduced when decisions are made by a team rather than a single person. The decision-making team should be comprised of people:

• with the necessary experience and expertise to evaluate the proposed decision and point out its strengths and weaknesses
• with different perspectives who are likely to see the issue in different ways; and
• who are not likely to be immediately affected by the decision and can consider it more objectively than someone with a strong interest in a matter being decided one way or another.

Establish a formal decision-making process. Having an objective decision-making process with pre-defined criteria rather than making decisions on an ad-hoc basis helps reduce bias. This means:

• establishing formal steps for determining how different decisions will be made based on the nature of the decision and its importance
• determining who will make decisions
• establishing specific times for decision-making where proposed decisions can be analyzed carefully
• ensuring that people involved in the decision-making process have all relevant information that they need to evaluate the proposed decision and compare it to other possible courses of action; and
• creating a cooling-off period where decisions can be reflected upon before implementation.

Make decisions based on data. A key weapon in reducing bias is basing decisions on data rather than opinions or intuition. A data-driven decision-making approach involves asking several questions:

• what type of data will help me make the best decision?
• how can I obtain that data?
• what is the quality of my data? This refers to the data’s relevance, accuracy, and timeliness.

Create a culture of debate where critical opinions are encouraged. Biases are most likely to form, remain undetected, and negatively affect firm operations when decisions are unquestioningly accepted. People should be encouraged, and ideally incentivized, to identify potential weaknesses in decision-making rationale.

For example instead of:

“India is an amazing market. We should ramp up our investment there.”

“OK, let’s do it.”

A better approach is:

“India is an amazing market. We should ramp up our investment there.”

“What does amazing market mean?”

“What are the core variables that drive our internal business strategy?”

“How does India compare with other countries regarding these variables?”

“What are the practical steps required to ramp up operations in India, and how likely is it that they can be carried out?”

“What return is expected on the investment compared to returns that can be obtained from other investments of firm resources?”

Encourage feedback regarding the decision-making process. While many firms encourage broad discussion of some aspects of a firm’s business, such as how to improve sales, become more competitive, or improve the work environment, the decision-making process itself is often not subject to comprehensive scrutiny. Soliciting feedback from everyone in the firm and outside experts regarding a firm’s decision-making process and how it can be improved can help identify bias and lead to a better understanding of ways it may be negatively affecting firm performance.

Conduct decision-making process audits. The decision-making process should be audited regularly to check for patterns that suggest bias. Patterns to check for include:

• who is making decisions
• how decisions are made
• the key factors the decision was based on; and
• the type of decision that is made.

Conclusion

Biases have a strong influence on decision-making. While it is not possible to eliminate bias, by understanding why biases exist and taking concrete steps to reduce them, decision-making can be significantly improved. Even small reductions in bias can have a large impact on firm performance, competitive advantage,and value creation ability.

The photo for this article was taken from Yana Vandeborne on Unsplash.