How to Account for Cognitive Biases as an Entrepreneur
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Like it or not, cognitive biases have the power to negatively impact your role as an entrepreneur. These baked-in tendencies of the human brain are almost like bugs in our software. If properly managed and controlled, they pose almost no risk, but if left unchecked, they could fundamentally change how we see the world — and how we make decisions for our businesses.
So how exactly are we supposed to gain control over our own cognitive biases?
How do cognitive biases work?
Let’s start with an explanation of how cognitive biases work. A cognitive bias itself is any kind of system or tendency in the human mind that leads to a deviation from rationality. It could be your brain distorting perceptions, leading you to false conclusions about your surroundings. Or it could be your brain processing data in an irrational or inconsistent way, resulting in flawed or skewed decision making.
In any case, a cognitive bias has the power to undermine facts and objective perceptions. As an entrepreneur, this can be devastating; it can lead you to believe falsehoods about the nature of your business or lead you to make irrational decisions in your business environment.
These are natural features of the human brain, often the vestigial leftovers of some evolutionary benefit. Accordingly, they can’t be easily rooted out. However, there are several strategies that can help you identify and compensate for the cognitive biases most likely to affect your way of thinking.
Let’s take a look at them.
Understand the most common biases
First, work to understand some of the most common cognitive biases that are likely to affect you as an entrepreneur:
Confirmation bias. Confirmation bias makes us disproportionately value information that supports our current assumptions and disproportionately downplay information that contradicts them. In other words, you’re more likely to seek out and emphasize bits of information that support your existing beliefs. This is partially why it’s so hard to change someone’s mind on anything.
Status quo bias. We have a tendency to keep things as they are, fearing new things and underestimating the potential value in shaking things up.
The anchoring effect. We tend to get fixated on numbers. Seeing a high number, in any context, can make us overvalue and overestimate things for hours to come.
The ambiguity effect. We’re much more likely to choose options with known probabilities than those with unknown probabilities (even if the odds of the known probabilities are unfavorable).
The bandwagon effect. Unsurprisingly, we tend to favor positions and decisions we feel are supported by the majority.
Merely being aware that these biases exist won’t make them disappear. However, you might be able to proactively recognize when your thinking is distorted by one or more of these biases. Thereafter, you can fight against them.
Rely on concrete measurements
Any successful entrepreneur will tell you how important it is to rely on concrete, objective measurements. This is even more important in the face of our cognitive biases. If you have a subjective feeling that a product “should” be a specific price, do your research and see if you can find examples of products being sold at that price. Numbers won’t lie to you, and they make it much harder to invent a counterargument.
Step outside your situation
We often get stuck with cognitive biases because we’re stuck in our own situation. If you’re negotiating a deal with a tough client, you may feel vindictive toward them, or you may evaluate their offer based on your current emotional state or past experiences. To step out of this rut, pretend you’re looking in as an outsider. If your friend were in a similar position, how would you advise them to proceed?
Ask others for their insights
It’s not a great idea for entrepreneurs to constantly rely on others for validation or for new ideas. However, there’s enormous value in considering the insights and opinions of others — especially when challenging your own cognitive biases. If you feel a certain way, present the facts and data to someone you trust and ask them what they make of it (without volunteering your existing conclusion). If they feel the same, you can have higher confidence that you’re thinking rationally.
Prove yourself wrong
Though counterintuitive, if you’re not sure about your conclusion, you should try to prove yourself wrong. It’s not hard to find evidence in favor of your current position if you look hard enough. But can you find evidence to contradict it? In many cases, this reframed approach can help you discover new facts or new details that change your perspective.
Cognitive biases are unavoidable. They’re something we all have to deal with. But with these strategies, you can minimize your susceptibility to them, and ultimately make more rational, objective decisions as an entrepreneur.