I am fascinated with questions of how we know what we know and why we think and act the way we do, topics frequently touched on in the investigations of cognitive psychology, evolutionary psychology and neuroscience. So I was very excited to read an article recently in McKinsey Quarterly that discussed the implications of cognitive biases on business (a recent article only to me).
I can recount a number of anecdotes from my own consulting experience where cognitive bias has interfered with team collaboration and good decision making. One of my favorites was a particularly contentious and political exchange that really centered on highly fallible recollections. I took great private satisfaction later in being able to produce a teleconference recording vindicating my side of the story, and I was admittedly tempted to send an anonymous copy of The Invisible Gorilla to one of the meeting participants; I resisted the temptation in favor of showing some semblance of social grace.
Much of the thinking I have advanced in the area of why acquisitions fail to deliver value (assuming good target selection) is based, in part, on the interference of cognitive bias. Put simply, integration teams are too risk averse, succumbing to the cognitive bias called loss aversion. No one losses their job for preserving the status quo, but status quo won’t position the integrated company to realize the sales growth and cost savings that justified the transaction price.
I don’t think enough business professionals acknowledge the impact of cognitive biases on their own decision making, to their great detriment. This is much of the premise of the works of Nassim Taleb as well as others. The fields of behavioral economics and behavioral finance try to incorporate learnings from psychology, although any breakthrough predictive models probably only exist outside academia as the closely held secrets of hedge funds. Those two areas of inquiry, however, seem more focused on understanding the effects of others decisions rather than learning to correct our own.
There is June HBR article with many valuable techniques for countering cognitive bias, in addition to just employing a more data driven approach to decision making (note: even statistic are subject to confirmation bias). We’ll never be able to eliminate it, and the real frustration is the inherent difficult in recognizing it in the moment. Nonetheless, we can cope, and those who do will be at an advantage to their competitors.