What’s the impact of cognitive biases on managers? by Marce Fernández

People are more likely to make mistakes when they cannot think clearly. As well as being fairly obvious, reliable studies have confirmed this with figures. We make different decisions depending on how tired we are, for example, which means that fatigue causes a cognitive bias in decision-making.

Cognitive biases are common in the human mind, including that of managers. So we must ask ourselves whether it is reasonable for managers to make important decisions under stress or when they have strong feelings about an open issue or when they are strongly influenced by a third party’s opinion, however tenable it may be.

If I were the CEO of an organization, I would try to get my staff to use rational judgment as the main pattern when making relevant decisions. This would mean that the factors that affect those decisions are evaluated in a neutral way without the influence of invisible elements that can distort the assessment.

Cognitive biases have been widely studied by researchers and professors, but their application to the work of managers has not. In The Wrong Manager, I selected almost 20 biases with the greatest potential impact on business management. For the purposes of this article, I have made a more limited selection in order to highlight the most influential ones.

“Narrative fallacy” is the first bias I would like to bring up. According to Nassim Taleb, we humans tend to assign a simple and straightforward cause/effect relationship to our knowledge, creating a kind of illusion of understanding. We think we know the reason for every event and, by extension, we think we can also foresee them, but in reality we tend to ignore how the elements of the problem interact with each other and the real consequences of any possible decisions about them.

Managers tend to overestimate what they think they know about a problem and what is available to them. Daniel Kahneman points out the tendency of the human mind to save resources. If one has a supposedly consistent association that can be used to solve a problem, one uses it (pure heuristics). Therefore, managers often tend to use available information, no matter how sparse and irrelevant, and the knowledge they have, no matter how insufficient or even misleading. Kahneman called this bias “availability-misweighing tendency” and, in my opinion, it is one of the most damaging vices a manager can have.

Some people – certainly most people, including managers – tend to have an overly favourable view of their own capabilities. They believe themselves to be more capable, intelligent, skilled, talented, effective and efficient. They trust their judgement more than reality suggests and they trust the outcome of their actions and decisions more than they should. As a result, they tend to forego proper evaluation, which leads them to make poor decisions. We call this bias “the overconfidence effect”; it is a good name.

Now look at this: by joining these three first biases (the narrative fallacy, the availability-misweighing tendency and the overconfidence effect), we could understand how the minds of many managers operate: they conjecture an illusion of reality, believe that what they know is sufficient to make the right decision and feel confident about the outcome.

Let me now show you how the so-called “confirmation bias” intensifies the effect of the previous three. A neutral decision maker will tend to search for information related to a particular topic, regardless of whether it supports or contradicts their previous thoughts. However, managers affected by confirmation bias will interpret information in a way that favours their perspective, recalling only data or events that may justify their views, and ignoring any information that challenges their position.

In order not to tire you out with an endless list of mental biases, I will end with three others that I believe are particularly prevalent in management: the halo effect, the inconsistency avoidance tendency and the blind spot bias. The “halo effect” means that an opinion is taken according to who expresses it, which distorts the neutrality of the analysis. Ideas that come from people who are more popular, or in a higher position, or even with a higher salary, are overvalued compared to perhaps better ideas from people in a less prominent position.

The “inconsistency avoidance tendency” is another of the most serious bias and is tough to deal with. It refers to decisions that might go against the decision-maker’s personal values and beliefs. If a problem or situation is related in any way to the manager’s ideology, be it political, economic, social, religious or ethical, it will be difficult for them to make a neutral decision as they should. One’s own beliefs often become strong mental biases.

You, manager or executive, have read the above texts and may be thinking: interesting ideas that can be applied to many people but not to me. This is also human. It shows the existence of the last cognitive bias on this list: the “blind spot bias”. Believing in a perfect mind free from weaknesses and limitations is a relevant bias in itself that prevents managers from taking the necessary steps to reduce the impact of cognitive biases. If they insist on considering themselves immune to the mind tricks that humans suffer from, they will not be able to change their approach to decision-making or avoid the decision errors that affect their performance.