Know Your Behavioral Biases

We all have a bias for or against at least one thing. I, for example, tend to discriminate against bigots (and yes, I see the irony in that). When it comes to making decisions for your firm, about business practices or personnel or whatever, it is not enough to say “don’t have a bias.” You do, and you need to accept that, and then try to minimize any negative impact of it.

Anyone who has studied economics (disclaimer: I majored in it) understands the idea that people make rational choices based on the information at hand. What sounds simple in theory, however, becomes much more complex once you realize that everyone’s idea of what is “rational” is based on their own perspective. “Where you stand depends on where you sit,” as one of my professors once said. (and as Rufus Miles said much earlier)

For this discussion, we are not necessarily talking about personal biases, like “I don’t like tall people” (though those can certainly be a factor in personnel decisions and you need to watch out for that). Our concern here is more about biases against or in favor of certain behaviors, such as always being risk-averse, or always preferring action over inaction, or always studying issues to death…something like that. These are not necessarily bad things, but if you do them all the time regardless of the situation then you will do them when they are not appropriate and they will have more impact on your decisions than the facts do. You should engage in these behaviors and make decisions based on them because the situation calls for it, NOT because that’s just how you always do things.

So how do you deal with your employees’ biases (which might be pretty obvious to you) as well as your own (which you might not even realize you have)? Well, you cannot just ignore them, because their effects will still be there. Instead, an article from of McKinsey & Company recommends more emphasis on the decision making process.

Improving strategic decision making therefore requires not only trying to limit our own (and others’) biases but also orchestrating a decision-making process that will confront different biases and limit their impact. To use a judicial analogy, we cannot trust the judges or the jurors to be infallible; they are, after all, human. But as citizens, we can expect verdicts to be rendered by juries and trials to follow the rules of due process. It is through teamwork, and the process that organizes it, that we seek a high-quality outcome.

One of the first things you should do — and one of the hardest — is identify the biases around you that affect strategic decisions. Identifying your employees’ biases might be easy, if you have watched them in action over time, but identifying your own can be tougher and will take some serious introspection. You might ask your peers or others with whom you work if they have noticed anything…chances are they have.

Once you have identified your biases, find a way to counter them. Find people with competing biases and give them an input (not necessarily a vote) into the decision process. Phrase problems in different terms and see if you get the same result. The goal is to devise a process that leads to an objective analysis of a situation, even though each individual involved in it cannot really be objective. The McKinsey article above offers some good suggestions for countering the biases you find and institutionalizing these methods.

The worst thing you can do is pretend that behavioral bias does not exist, or that it will have no impact if ignored. Your decisions, and the suggestions from your employees, will reflect your perspectives, and that is not always the same as the firm’s best interests. Be honest about it, and get past it.