BiasesWho likes failure?

In business, we’re bombarded constantly with decisions. And, of course, we want to make the rights calls. So, it’s reassuring to learn that failure isn’t random. Certain quirks of human nature, or cognitive biases, that contribute to irrational decision-making can be learned and avoided.

We all fall prey to them. Take Long-Term Capital Management (LTCM). A hedge fund whose board of directors included Nobel Prize winners, it performed impressively – outdoing the U.S. stock market – until failing to cope with the Asian and Russian financial crises.

Intelligence alone is no guarantee of error avoidance. It’s common sense, consulting a mental checklist, that provides protection. That’s heartening – anyone, including you, can get substantially better at decision-making.

This blog will examine 10 cognitive biases you can avoid for better decision-making. There are many more, but we believe awareness of some is better than none – knowledge of any will empower you.

BiasesDoubt avoidance

People loathe uncertainty. It forms an uncomfortable vacuum in their minds they rush to fill with whatever comes to hand. It’s understandable for evolutionary reasons, the caveman that dawdled over whether that shadow was a lion nay have died on finding the answer, but is bad in a business setting. It means, when making decisions, we rush to commit ourselves to a course of action. To remove uncertainty. And while it may provide initial comfort, the consequences of an ill-thought out and impulsive decision can be devastating in the long term.

So, take a break before deciding.

Inconsistency avoidance

Once we discover an idea we believe explains the world, or form habits, we tend to be extremely reluctant to change them. To appear inconsistent. But this is a false prize when consistency limits our responses and we persist believing in, or doing, dreadful things.

So, challenge your existing beliefs and habits, and question those you come to believe in or do beforehand.

Incentives are powerful

Motivation is all. A motivated worker, bringing enthusiasm to the task at hand, will be more productive than the disengaged one. But that isn’t the end of the story – you needn’t accept that someone’s lack of enthusiasm. You can stoke it with the proper incentives, to align completion of work with a goal they will actively strive for.

So, think about establishing rewards for hard work.

Social proof

The human desire to fit in is expressed everywhere and can feel overwhelming. But believing in or doing something, just because everyone else does, is a poor reason. The number of people has no bearing on truth or wisdom. Look at economic bubbles – in housing, stocks or tulips. Fuelled by those who bought in because ‘everyone else was’, their reward was financial ruin when the mob awoke to the reality that that which they were buying was worthless.

That’s not say that, once aware of social proof, you should avoid it entirely. Successful entrepreneurs benefit greatly when their new product or service catches on by a critical mass so that not to have it or use it threatens exclusion.

So, don’t be afraid to think differently and use it to your advantage when others don’t.

BiasesExcessive self-regard

Considering ourselves smarter than the average bear is reassuring. But underestimating what we don’t know, and overestimating what we do, can lead to disaster. Assuming knowledge is a metaphorical end of the road. There’s no further distance to go, personal growth is foreclosed. But humility in the face of the universe’s overwhelming complexity is a great spur for self-improvement. To keep on keeping learning and not let over-inflated confidence ferry us to bad decisions about which know little or nothing.

So, stay curious and remain mindful of what you don’t know, as much as what you do.

Overreaction to loss

Take away, or threaten to take away, something from a person and watch the sparks fly. We tend to react to loss, even if small, with extreme irrationality. Look at gamblers who, aggrieved by initial and subsequent losses, squander all their money trying to get even. Similarly, businessmen may make faulty investment decisions wanting to bounce back from failure.

So, when things don’t go your way, distrust your initial response.

Inappropriate response to contrast

We’re often hoodwinked by comparisons – think of the man led around poor quality, yet expensive, houses by estate agent. It’s obvious what his response will be when shown the house that’s better quality and more affordable. But he’s a victim of his false comparison. Because he’s not seen every house, he may have missed out on a still better deal. The house he went for only appears a screaming buy in comparison to what he’s seen.

So, the lesson is to be mindful of the bigger picture. To broaden one’s horizons so you’re not led astray by contrasts drawn from incomplete information.

Love of reasons

People don’t like meaninglessness. For everything they do, they crave a reason. Studies have shown that when favours are asked of strangers, receptiveness increases when they’re given a reason. Even if that reason is a lie.

So, in the workplace, supply reasons when delegating work.

BiasesGiving back

People don’t like being in others’ debt – we feel compelled to give back when given to. And it’s not hard to see why it was selected for in our species, given it helped group cooperation.

So, harness this tendency to your advantage. Offer a concession from an unrealistic expectation to one you find reasonable when negotiating without making it obvious you haven’t conceded anything. The person with whom you’re negotiating is very likely to reciprocate this seeming climbdown with acceptance of what you were after all along.

When biases align

We can’t expect people to show one bias at a time. They’re messy and their thinking will likely be distorted by many. Multiply that by a broad cross section of society and there’s potential for biases to either cancel out or powerfully reinforce one another, leading to extreme results called the ‘Lollapalooza Effect’.

An example? History is littered with atrocities motivated by ideological extremes – unarguably bad outcomes. Psychologically, they arise from a confluence of inconsistency avoidance and overreaction to loss. Ideological true believers are born out of people’s hesitancy to change their minds, to become inconsistent. Taking instruction from their worldview, they’ll commit themselves to any and all action, no matter how objectively bad, just to preserve consistency. And if they lose power, or suffer some other defeat, they’ll go to extreme lengths to reverse it.

So, don’t think about biases in isolation. Consider how, in any situation, numerous biases combine to exaggerate human behaviour far beyond what’s possible on their own.


Mindfulness of cognitive biases, that plague us all, is one way to make better decisions and get more from your business. Another is Khaos Control Cloud. Driven by a philosophy to minimise inefficiency and maximise profit, Khaos Control Cloud is an ‘ERP on the Go’ solution that enables management of your stock, your reordering and your sales channels from whichever device wherever there’s an internet connection.

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