Making good business decisions requires critical thinking, the ability to analyze information objectively and logically, and to avoid biases and fallacies. However, sometimes we may fall prey to some common assumptions that can cloud our judgment and lead to poor outcomes. Here are some examples of assumptions that can hamper our critical thinking and how to avoid them.
Confirmation bias is the tendency to seek, interpret, and remember information that confirms our existing beliefs or preferences, while ignoring or dismissing evidence that contradicts them. This can lead to overconfidence, selective exposure, and distorted reasoning. For example, if we assume that our product is superior to our competitors, we may only focus on positive feedback from customers and ignore negative reviews or complaints. To avoid confirmation bias, we should actively seek out alternative perspectives, test our hypotheses, and challenge our own assumptions.
Confirmation bias, particularly relevant in tech leadership, can skew decision-making and innovation, leading to overconfidence and stagnation. Recognizing and mitigating this bias is vital in maintaining competitive edge and product development. Strategies include seeking diverse opinions, relying on empirical testing rather than preconceived beliefs, encouraging a culture of healthy skepticism, and reviewing assumptions. These measures ensure that decisions and innovations are rooted in reality, not just in alignment with existing beliefs.
Confirmation bias at leadership level often results into fiasco. It becomes highly noxious to deal with and often spawned due to ignorance of facts & evidence; Compromised "Analytical reports", Doctored mongering and so forth.
Unraveling the mystery behind poor business decisions often reveals a trail of assumptions. ???♂? Assuming that past success guarantees future triumph can be a perilous pitfall, as markets and dynamics evolve. ?? Another culprit is the assumption that everyone sees the world through the same lens; diverse perspectives are the lifeblood of sound decisions. ?? Overlooking the influence of emotional biases is a silent saboteur—objective analysis is key. ?? Let's challenge these assumptions, paving the way for smarter, more informed choices.
Anchoring effect is the tendency to rely too much on the first piece of information we receive when making decisions, and to adjust our subsequent judgments based on that initial anchor. This can lead to underestimation or overestimation of the value, quality, or importance of something, depending on the anchor. For example, if we assume that the market price of a product is $100, based on a previous sale or advertisement, we may be reluctant to pay more or accept less for it, even if the market conditions have changed. To avoid anchoring effect, we should gather more data, compare multiple options, and be aware of the influence of the anchor.
Gather data and always get multiple opinions! Today, information and sources often compete with each other. Daily you're likely reading something that frames 1 perspective. Give yourself the grace to accept when you've gone too far. It's okay to backtrack. Recent example - I fell in love with a sparkling water brand. (I'll call it AAA). Its ingredients are natural. 2 to 3 on the can. Real fruit. Simple and perfect. My wife saw me drinking them, and she referred me to an article warning about PFAS in the product. The first article I read listed AAA as a great option! Compared to 8 other brands, its % of PFAS was small. My wife sends me another article, listing AAA as the worst of the best, giving me 8+ brands that have no PFAS.
Framing effect is the tendency to be influenced by the way a problem or a choice is presented, rather than by the objective facts or consequences. This can lead to different preferences, judgments, or actions, depending on the wording, context, or tone of the message. For example, if we assume that a product has a 90% success rate, based on a positive framing, we may be more likely to buy it than if we assume that it has a 10% failure rate, based on a negative framing, even though the information is equivalent. To avoid framing effect, we should focus on the relevant facts, consider the implications of different scenarios, and avoid emotional or persuasive language.
Availability heuristic is the tendency to judge the likelihood or frequency of something based on how easily we can recall or imagine examples of it, rather than on the actual evidence or statistics. This can lead to overestimation or underestimation of the risks, opportunities, or trends, depending on the salience, recency, or vividness of the information. For example, if we assume that a certain event is common or probable, based on a recent news report or a personal experience, we may neglect the actual probability or data. To avoid availability heuristic, we should seek out reliable and diverse sources, use numerical or graphical representations, and question our own memory or intuition.
Hindsight bias is the tendency to believe that we knew or could have predicted the outcome of a situation after it has occurred, even though we did not or could not have done so before. This can lead to overconfidence, regret, or blame, depending on the result. For example, if we assume that we made a good or bad decision, based on the hindsight knowledge of the consequences, we may ignore the uncertainty or complexity of the situation at the time. To avoid hindsight bias, we should document our assumptions and expectations, evaluate our performance and feedback, and learn from our mistakes or successes.
Sunk cost fallacy is the tendency to continue investing time, money, or effort into a project or a course of action, even though it is no longer profitable or beneficial, because of the previous commitment or investment. This can lead to waste, inefficiency, or loss, depending on the opportunity cost. For example, if we assume that we have to finish a project or a contract, based on the sunk cost of the resources already spent, we may ignore the alternative options or the changing circumstances. To avoid sunk cost fallacy, we should consider the marginal costs and benefits, evaluate the current situation and goals, and be willing to change or quit.
Would love to just mention that ANY assumption leads to poor business decisions. Allowing personal bias or assumption to cloud your decision-making is the root of all problems. Not a martyr here, we all do it as humans, but as long as we are aware that we all do it, and take steps to mitigate, decisions will be much more impactful. One great way to mitigate it is to seek collaboration and feedback in decision-making whenever possible. Of course there are game time decisions that need to be made, and you can only make the best decisions you can with the resources you have available at the time. Resources include both internal and external, and a key internal resource is self-awareness.