Cognitive Biases and Errors in Decision Making - Explained
What are Biases and Errors in Decision Making?
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Table of ContentsWhat are the Common Biases & Errors in Decision-Making?Overconfidence BiasHindsight BiasAnchoring EffectFraming BiasEscalation of CommitmentImmediate GratificationSelective PerceptionConfirmation BiasAvailability BiasRepresentation BiasRandomness BiasSelf-Serving BiasFundamental Attribution ErrorRationalizationBandwagon EffectStatus Quo BiasIllusion of ControlPrudence TrapRecallability TrapSunk Cost BiasLoss AversionSurvivorship BiasDecision-Making Mistakes Related to Bias
What are the Common Biases & Errors in Decision-Making?
Some common decision-making errors and biases are as follows:
Individuals overestimate or have excessive confidence in their ability to predict or foresee future events. This will cause the decision maker to unsupported or risky decisions.
This is the tendency of individuals to see past mistakes or occurrences as obvious. After the event has occurred, individuals believe that they did or should have seen it coming. This is important when evaluating others decisions.
Anchoring is when someone attaches themselves to an initial bit of information. In decision-making, it entails people placing too much emphasis on the single piece of information. This can cause the decision maker to fail to consider other important information.
Framing bias is an individuals response to how a situation or decision is presented. This can lead to individuals being deceived or manipulated by third parties.
Escalation of Commitment
This is a tendency of individuals to continue to follow what has proven to be a negative or unproductive course of action. Also known as the sunk cost fallacy or sunk cost bias, because the tendency is motivated by an unwillingness to admit that they are wrong or accept that resources are lost or wasted (they may be able to recover the investment).
This is the tendency to make the immediacy of a potential solution to a problem or situation the most important criteria. The result is the failure to consider all available options and settling for a sub-part outcome form a decision that fails to deliver all available value.
This is the tendency to see a particular situation or issue from a chosen perspective. This is related to the team-based mentality. We see all situations or issues through a common lens that influences our ability to understand alternative or conflicting points of view or alternatives.
Confirmation bias is to actively look for information or facts in a situation that supports a particular choice or decision. This approach causes the decision maker to ignore evidence to the contrary. This can also cause a failure to consider contrary information of positions.
Availability bias is a focus on immediate information or situations that come to ones mind. The result is that we tend to believe the information or experience that we recall or demonstrative or explicative of a situation or scenario. This comes at the expense of looking for additional information that could lead to a further understanding of the situation. As such, a decision is made on limited or superficial information.
This is the tendency to believe a situation is indicative of a greater tendency. That is, it is related to stereotyping. The decision maker believes that the situation represents all of the characteristics of the population of which it is a part. It causes a failure in the perception of ones ability to predict a given outcome or result.
This is the tendency to see a pattern in otherwise random data or information. We increasingly seek to harness new sources of information in the decision-making process. Our search for meaning in information leads to an unreasonable reliance on insignificant results.
This is ones tendency to attribute the positive results of a decision or situation to ones own actions or decision. Likewise, it causes individuals to attribute negative consequences to factors outside of our control. This can cause an inability to accurately assess or affect a situation through decision making.
Fundamental Attribution Error
The tendency for people to over-emphasize personality-based explanations for behaviors observed in others while under-emphasizing the role and power of situational influences on the same behavior.
The process of constructing a logical justification for a decision that was originally arrived at through a non-rational decision process. Can be conscious, but is mostly subconscious.
The tendency to do (or believe) things because many other people do (or believe) the same.
Status Quo Bias
The tendency for people to like things to stay relatively the same. The preference towards alternatives that maintain or perpetuate the current situation even when better alternatives exist.
Illusion of Control
The tendency for human beings to believe they can control or at least influence outcomes which they clearly cannot.
When faced with high-stakes decisions, we tend to adjust our estimates or forecast to be "on the safe side".
Giving undue weight to recent, dramatic events.
Sunk Cost Bias
To make choices in a way that justifies past choices, even when the past choices no longer seem valid.
The tendency for people to strongly prefer avoiding losses than acquiring gains.
For example, the frequent mistake to forget to include companies that no longer exist in research reports studying various forms of corporate performance.
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Decision-Making Mistakes Related to Bias
In their book Decision Traps, Russo and Shoemaker reveal the ten most common mistakes in decision-making, many of which are related to cognitive bias:
- Plunging In: Beginning to gather information and reach conclusions too early.
- Frame Blindness: Creating a mental framework for your decision.
- Lack of Frame Control: Failing to define the problem in more than one way.
- Overconfidence in Your Judgment: Failing to gather key factual information.
- Shortsighted Shortcuts: Relying inappropriately on “rules of thumb”.
- Shooting from the Hip: Failing to follow a systematic procedure when making the final decision.
- Group Failure: Failing to manage the group decision-making process.
- Fooling Yourself About Feedback: Failing to interpret the evidence from past outcomes correctly.
- Not Keeping Track: Failing to keep systematic records to track the results of your decisions.
- Failure to Audit Your Decision Process: Failing to create an organized approach to understand your own decision-making.