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3 Ways Your Brain Can Trick You Into Making Bad Decisions Cognitive bias is an insidious threat to the rational decision-making you probably think you're engaged in.

By John Boitnott

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As entrepreneurs, we want to believe that we're completely rational human beings, making decisions based on logic and critical thinking skills. Yet according to Nobel Prize-winning economist Dr. Daniel Kahneman, who studied cognitive biases with the late Amos Tversky, we actually rely far less on logic in decision-making than we're probably comfortable admitting.

A cognitive bias is the tendency to act, believe, and process information in ways that favor self-interest, undue confidence, or historical experience. When we're blind to them, as we often are in the heat of the decision-making moment, they can result in decisions and actions that don't serve the best interests of our businesses or ourselves.

Cognitive biases are often unknown and unrevealed to us, and we're all susceptible to them. If your biases are presenting challenges to your company's success, how would you know? With a little self-awareness and a few tactical changes, you can learn to ask different questions to counteract your personal biases, resulting in better decisions.

The Ambiguity Effect: Avoiding the Unknowns

This is when you prefer options where the odds of a favorable outcome are known, as opposed to ones in which the odds of a favorable outcome are unknown.

The Problem: You miss viable options because their outcome may be a little less certain.

The ambiguity effect is the equivalent of the old maxim "better the devil you know than the devil you don't." It makes you cling to options that are known and avoid the ones that are unfamiliar, even though the latter might be vastly more beneficial to you and your business.

Carsten Eickhoff studied cognitive biases, including the ambiguity effect, in the crowdsourcing context. He explained that missing information makes decisions seem much harder, sometimes impossibly so, while simultaneously making some of the known options appear much less appealing. The result? You can get stuck in limbo, unable to make up your mind.

The Fix: Use a team approach to evaluate the data and information underlying any big decision facing your business. Evaluate the unknowns in particular. What don't you know? What information is missing?

Brainstorm ways to collect that data if possible. If not -- say, the missing information is proprietary to a competitor -- think about what that information would tell you if you had access to it, and see if there are alternative sources. For example, you probably won't get access to confidential customer survey data from a competitor, but you might be able to research independent online reviews for their leading products.

Related: 5 Tricks To Brainstorm Like It's Your Job

Anchoring: Your Favorite Benchmarks

Anchoring is a bias that's related to the ambiguity effect. Instead of analyzing each individual scenario that presents itself based on factors that are unique to your business needs in that moment, you rely over and over on the same factors in making every decision. Whatever is important to you in one decision is the same benchmark you'll use in the next one as well.

The Problem: One decision isn't like all the others. Good leaders know how to evaluate what's important in each situation and make the right decision based on the criteria relevant to that situation.

Like most human beings, you probably have some kind of yardstick you tend to fall back on to make decisions where you perceive that vital information is missing. That yardstick has probably proven fairly useful over the course of your life.

The Fix: Before you begin to evaluate a big business decision, take some time to clarify your best possible outcome. What's the best thing you can imagine happening for your business as a result of this choice? Once you're clear on your optimal outcome, you'll have a much better idea of what your decision-making parameters should be.

Related: 13 Cognitive Biases That Really Screw Things Up For You

Confirmation Bias

One of the best-known cognitive biases, the confirmation bias plays tricks on your ability to assess evidence for or against facts, conclusions and viewpoints. In other words, you tend to look for and focus on evidence that supports your preconceived beliefs or opinions, and you ignore any evidence that challenges those opinions.

The Problem: You might be wrong. Risk your business interests on this bias and you'll almost surely end up being blindsided by a result you truly thought was impossible, and for which you are definitely unprepared. This is most common where outside factors outside your control will impact the outcome of your decision or choice.

The Fix: Start with coming to grips with your desire to be proven correct. People want to be right. It's simply human nature. Being cognizant of that desire can go a long way towards combating the negative effects of confirmation bias. Possessing the emotional intelligence to resist the need to be right at the expense of reaching the best resolution for everyone involved is also key.

Finally, learn to foster what Buddhism terms "beginner's mind." That's a malleable, curious, open state of mind that helps us learn new topics and skills. It's very difficult to be taken in by cognitive bias when your focus is on learning new information instead of being right.

Everyone has biases. They're not a sign of weakness. The weakness for business owners and leaders is in ignoring those biases. Simply becoming aware of the biases you're prone to is a huge first step in countering them.

John Boitnott

Entrepreneur Leadership Network® VIP

Journalist, Digital Media Consultant and Investor

John Boitnott is a longtime digital media consultant and journalist living in San Francisco. He's written for Venturebeat, USA Today and FastCompany.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

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