Apparently, our everyday activities in life are faced with situations that require us to make decisions. In businesses, managers are always faced with the challenge of choosing the most effective decision-making method that best fits the problem the organization is facing. The success of any business or individual life depends on the decisions taken towards solving the situation at hand. Therefore, experts recommend that the best way to arrive at effective decisions is by using knowledge and available information to make decisions. For that reason, a person should first decide to make a decision, consult him or herself, then consult with the group, and use the available data to facilitate in making the decision(s). However, research in social psychology and behavioral economics show that people end up making irrational decisions because they unknowingly allow biases to guide their decision-making process ( Hilbert, 2012 ). Cognitive bias also known as psychological bias influences the outcome of any decision leading to stagnant growth and low returns on investment for businesses.
Biases that Influence Decision-Making and how to overcome them
Psychological Bias also referred to as Cognitive bias by some scholars can be defined as systematic errors in thinking that affect the judgments and decisions that people make in life, businesses, or when faced by a certain situation. The problem arises from the way a person remembers a problem which implies that their attention matters ( Hilbert, 2012 ). Since narration of most situations in life is subjective to a person's mental processing and interpretation of information, people tend to simplify problems so that they seem easier for them to handle on themselves. Unfortunately, some situations cannot be perceived in another way other than the one provided which results in bad judgments and poor decisions. Through such form of thinking and perceiving problems, it can result in illogical interpretation, perceptual distortion, or inaccurate judgment ( Hilbert, 2012 ). Some of the common forms of cognitive biases include overconfidence bias, self-attribution bias, anchoring bias, etc. which cumulatively impact the decisions people make in life.
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Anchoring or Confirmation Bias
According to an article in the American Psychology and Psychiatry Journal, anchoring and confirmation bias involves people making decisions based on first impressions and paying more attention to data that supports what they think is right ( Fischhoff, 2013 ). Such biases arise due to some factors that influence effective thinking and reasoning. Such factors include mental noise, emotional motivations, and placing greater value on the first information that comes into the mind (heuristics or anchoring bias). Also, functional fixedness where a decision-maker focuses on solving a problem in one way while ignoring other ways that may be better. According to Daniel Kahneman and Amos Tversky, American-based Israelites psychologists, anchoring and confirmation bias can be the best way out in some situations ( Fischhoff, 2013 ). For instance, while preparing for examinations, learners highlight or note down important words, phrases, or sections of their coursework to make it easier for revising a day or two to the examination day. Their decisions depend on their first impression in relation to the examination structure.
Suggestions on how to overcome Anchoring or Confirmation Bias People should know that Anchoring or Confirmation Bias depends on their mental perception of situations and therefore it can be controlled ( Costa et al., 2017 ). Experts say that the first step in making informed decisions and avoid Anchoring or Confirmation Bias is by seeking education and being aware of what to avoid and what to incorporate in decision-making ( Fischhoff, 2013 ). Therefore, experts advise people to take time when faced with a situation that requires decision-making to properly control processing of the situation. Also, decision-makers especially organization managers are advised not dwell on the past problems when solving the current problems because it tends to cloud their judgment and give them a wrong impression of the current situation.
Overconfidence Bias
Overconfidence bias can be defined as the tendency of a person to believe that his or her contribution to a decision is better and more valuable than it actually is ( Costa et al., 2017 ). In businesses, people tend to believe that their entrepreneurial skills are better than their counterparts and end up failing to spot the minor limits to their knowledge that they could use to their advantage. Even though overconfidence bias has some benefits especially in the business world, a study conducted by Stanford MBA students showed that 85% of people put themselves in the best 25% people in the world. A good example was the American drivers who see themselves as the top 50% of all the drivers in the globe ( Costa et al., 2017 ). They concluded that human beings usually overvalue their abilities in relation to other people. Overconfidence arises from people thinking that they are the best in any situation facing them and it has a very devastating impact on decisions that require the contribution of every team member. In their conclusion, the scholars advised people to dwell on overconfidence bias if the information they have is reliable, objective, and comprehensive on the issue at hand.
Suggestions on how to overcome Overconfidence Bias Experts advise decision-makers to consider the sources of information available and evaluate them if they are fact-based so that they do not make their analysis based on hunches. They have come up with two mitigating questions for any manager who intend to apply overconfidence style in decision-making. Managers should ask themselves, “Who else is involved in gathering information? Has information been gathered systematically?” ( Costa et al., 2017 ). Therefore, people should ensure that only the right people are involved in the process of analyzing a situation and coming up with a decision. They argue that a person who bases his or her choices on expertise rather than rank will avoid overconfidence bias when making decisions ( Costa et al., 2017 ). I believe that a good system of decision-making should be democratic whereby people conduct an impartial voting on the decisions put across and come up with a scoring system that is ideal for the problem being solved.
Self-Attribution Bias
Self-Attribution or Self-Serving bias can be defined as a cognitive process where people give success internal attributes and give failures external attributes ( Baumeister, 2013 ). In life, people tend to blame others for their failures but forget to acknowledge those who assisted them to succeed. A good example where a person blames external factors is in learning institutions. When a student scores good grades in an exam he or she attributes it to hard work ( Baumeister, 2013 ). However, if he or she scores lower grades in the next test despite preparing as in the previous exam, he or she blames the teacher for under-marking or not explaining the topic well enough to them. Self-Attribution in decision-making arises from the tendency of people trying to avoid inflicting pain upon themselves when they fail in achieving something. As a result, they try to associate their failures to something that has the potential of causing it. In an effort to hold one’s own self-worth, people attribute success to themselves.
Suggestions on how to overcome Self-Attribution Bias. In order to avoid self-defense and blaming external factors, psychologists advise people to have self-compassion when solving problems which reduce unnecessary defensiveness that is a key contributory factor to poor decision-making ( Baumeister, 2013 ). Experts advise people to focus on the goals of their activities and strive to create events that aim at achieving better outcomes. Consequently, they will avoid getting results that are on the contrary to their existing beliefs or options. People should strive to work with others and exercise the virtue of showing gratitude to those who help them. Also, psychologists believe that the best way to handle an issue is by approaching it with a positive mind and take the failures as a challenge to do better next time rather than dwelling on them ( Baumeister, 2013 ). People should train to look at other people non-judgmentally and use empathy to build on their emotional intelligence which helps in avoiding self-attribution when making decisions.
Conclusion
Apparently, every human being is trapped within his or her thoughts when faced with a challenging situation that requires proper decision-making. Also, it is difficult to identify cognitive biases in us because they come from our subconscious thinking. Therefore, we cannot eliminate biases from our everyday activities. The best thing is to aim at reducing them so that their impact does not cloud our decision-making.
References
Baumeister, R. F. (Ed.). (2013). Self-esteem: The puzzle of low self-regard . Springer Science & Business Media.
Costa, D. F., de Melo Carvalho, F., de Melo Moreira, B. C., & do Prado, J. W. (2017). Bibliometric analysis of the association between behavioral finance and decision making with cognitive biases such as overconfidence, anchoring effect and confirmation bias. Scientometrics , 111 (3), 1775-1799.
Fischhoff, B. (2013). Judgment and decision making. In Judgment and Decision Making (pp. 19-38). Routledge.
Hilbert, M. (2012). Toward a synthesis of cognitive biases: how noisy information processing can bias human decision making. Psychological Bulletin , 138 (2), 211.
