How to make good business decisions

When it comes to making good business decisions, most of us think we take a considered, rational approach. We’ve built up a lot of experience over the years, tweaking our methods to get the best outcomes. However, all is not as it seems. Our brain is not as rational as we’d like to believe, and the very experience you’re relying on could be leading you astray. “How can that be?” I hear you cry. Well, it’s just human nature…

Your brain is not always rational

Despite being a marvel of the natural world, when it comes to critical reasoning your brain is prone to mistakes. Over years of evolution it has developed tricks to help us survive, tricks that in the modern world can get us into trouble. These are called cognitive biases. One of the most common and problematic is called “Confirmation Bias”.

What is confirmation bias?

Confirmation bias can not only lead to poor business decisions, but affects all of us in our daily life. It is the tendency to find evidence that supports your pre-existing beliefs, and dismiss or avoid evidence that challenges them.

Say for example you support a particular candidate in an election. Without realising it, you will look for articles and information that show why they are the right choice, and downplay any criticism they receive. However, for their opponents you’ll do the opposite, giving greater emphasis to their criticisms and downplaying positive stories.

Essentially, we see the world through a filter. We are not objective, taking in all the information and making balanced decisions. Instead we hold a belief, then interpret information in a way that will support that belief. The more information or experience we have, the more convinced of our belief we become, regardless of whether it’s right or wrong.

Confirmation bias helps to explain why we are now so polarised as a society. Whereas prior to the digital age we all shared a few sources of news, now you can tailor the information you read to fit your beliefs. This creates echo chambers where balance is lost.

Being intelligent won’t make you rational

You might be thinking that confirmation bias explains other people’s behavior, but you’re too clever to make such mistakes. Actually, studies have shown that it affects people with higher reasoning skills more, as they’re better able to manipulate the facts to their advantage.

One study asked Republicans and Democrats to examine some data on the effects of skin cream. For both sets of supporters, those with better numeracy skills gave better answers. They then set the same problem again, but this time said it was about gun control. Instead of finding the logical answers from the data, both sets tried to find solutions that supported their pre-existing views. If the data contradicted their views, they just worked harder to prove it didn’t.

How to overcome confirmation bias

Unfortunately our brains are stuck with confirmation bias for now. However, by being aware of it, you can take steps to reduce the impact it has. Seeking out different opinions is a good start. Read different newspapers and talk to people outside your normal circle.

For business decisions, or important life choices, you can also try using a framework called the ‘Six thinking hats’.

Six thinking hats technique

The six thinking hats is a technique used to look at a situation from different perspectives. Done alone or as a group, it is designed to break your normal thinking pattern to give you a more rounded understanding.

Each hat represents a particular point of view, and you ‘wear’ each one to produce different insights:

White Hat – Data analysis

Here you focus on your available data. Do you have any past trials or current trends you can learn from? Look for gaps in your knowledge, and try to either fill them or take account of them.

Red Hat – Emotion

What’s your gut reaction to the problem? How does it make you feel? How do you think it makes others feel? Use your intuition to understand the emotional response people will have.

Black HatNegativity

Now’s the time to look for problems. Be cautious and defensive, what are the risks and concerns? Make a list and assess how dangerous they are. You can then either accept them, eliminate them or make contingency plans.

Yellow Hat – Positivity

Be optimistic and think about all the benefits and potential value you can add. This is the reason why you are doing the project, so it should be compelling enough to outweigh the negatives. It will act as a mission statement and keep you going if things get difficult.

Green Hat – Creativity

Have a brainstorming session, use sticky notes and whiteboards. Share ideas and come up with creative solutions. Here it’s important not to be critical, you want everyone to feel it’s an open space. Don’t just go with your first good idea, try to come up with others and then ways to improve them.

Blue Hat – Process

This hat means thinking about managing the process, and could be the hat worn by people chairing meetings. If ideas are running dry, it could be time for green hat thinking. If there’s too much negativity in the air, then put on your yellow hat.

Using the six hats technique allows you to make resilient, rigorous decisions as well as finding creative solutions. If done as a group, it can also help to avoid conflict as everyone airs their concerns at the same time. Most importantly, it stops one perspective becoming dominant, helping to overcome bias to make good business decisions.