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Organizations are particularly prone to specific types of bias

Chapter 4 Cognitive biases can lead to errors in decision making


Certain biases are particularly likely to occur in organizational decision making. Dan Lovallo Share this expert DL Dan Lovallo and Olivier Sibony Share this expert OS Olivier Sibony provide a typology of the biases that occur most frequently in business settings:

Action-oriented biases occur when decision makers feel pressured to act and overestimate their skills and knowledge while underestimating the influence of the situation ( attribution error ), which can be rooted in overconfidence . They overestimate the probability of success of their initiatives and underestimate the ability of the competition to respond. To overcome such biases, recognize the role of chance and anticipate the causes of failure. One method for this is a premortem . To counteract overconfidence a culture of disagreement should be fostered.

Interest biases happen when goals and incentives are misaligned. Individuals may skew decision making to pursue their interests and goals. They may have trouble letting go of things they are strongly attached to (e.g. brands, products). Conflicting goals may lead to disagreement. Such discussions need to be made explicit to establish better alignment.

Pattern recognition is an innate feature of human cognitive ability, but it can lead to biases like confirmation bias in which individuals seek out information to confirm beliefs they already hold. It also means that decision-makers may be swayed by compelling storytelling or rely too heavily on recent examples. Pattern recognition may lead decision-makers to compare experiences that they should not or put too much trust in an idea because of the track record of its champion.

Stability biases occur because organizations tend to prefer the status quo. Most people will naturally try to avoid losses and pay too much attention to sunk costs . They are likely to be overly influenced by initial estimates or ideas ( anchoring ). Organizations can counter such biases by forcing difficult decisions through strict budgeting or stretch targets.

Organizations are prone to social biases that promote conformity and suppress disagreement which can lead to suboptimal decision making. Examples include groupthink in which the desire for harmony in the group suppresses dissenting views and sunflower management in which the opinions of the team follow the beliefs of the leader like a sunflower follows the sun.

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