We trust our own decisions too much
People often use so-called mental shortcuts (heuristics) when making assessments and decisions. This often leads to "good enough" decisions but can also result in systematic cognitive errors (biases). Many people know that biases can occur, but we often think we're immune, despite the fact that we're all influenced by various biases when we make choices.
Biases in Organizations Can Mean the Difference Between Success and Failure
Decisions influenced by bias usually don't have catastrophic consequences in our daily lives, but for businesses, they can make the difference between success and failure. Biases can affect everything from investments made by companies and investors to misdiagnoses in the medical field or incorrect decisions in the military. This suggests that implementing measures to reduce or eliminate bias can help improve processes and results, prevent crises, poor investments, and unprofitable strategies.
How to Counteract Biases
Research has shown that it's possible to counteract biases by using various debiasing techniques and strategies. Studies have demonstrated that these techniques are effective by reducing our "System 1" thinking—the fast, automatic decisions we make influenced by our situation, emotions, and those around us—and by fostering more analytical and objective "System 2" thinking.
A selection of techniques exists, depending on the situation and the bias you want to counteract. Debiasing can be aimed at individuals, where people can acquire knowledge about biases and learn techniques to make better decisions. It can also be applied to larger systems to achieve systemic changes for multiple internal decision-making processes within an organization.
Debiasing and Investments
RWE, a German energy company, experienced several unsuccessful power plant investments. After an investigation, they realized that several biases were at play in their decision-making processes, including optimism bias and confirmation bias.
Optimism bias refers to the tendency to be overly optimistic about the positive outcomes of a choice. This is an example of two biases that are often in play during investment decisions. They can lead people to overestimate an investment's potential and their own ability to deliver on it. This can apply to investment decisions made by individual investors and to decisions businesses make when they invest in things like property, plant, and equipment (PP&E).
To reduce the effect of optimism bias, they implemented the "pre-mortem" debiasing strategy. This involves encouraging employees to suggest possible negative outcomes of a plan during project planning and to propose solutions for these outcomes. The project teams were encouraged to ask critical questions about the future of their investments and suggest possible solutions for negative outcomes. This made them better prepared for potential crises and allowed them to plan how to handle them. Kahneman explained it this way: "Doing a pre-mortem on a plan that is about to be adopted won’t cause it to be abandoned. But it will probably be tweaked in ways that everybody will recognize as beneficial. So the pre-mortem is a low-cost, high-payoff kind of thing" (Kahneman, 2010).
Confirmation bias is a well-known cognitive error that involves the human tendency to focus on and seek out information that supports one's own opinion. If no one else dares to be openly critical of one's opinion, the result can be suboptimal assessments. A majority of RWE's investment decisions were based on the assumption that power production would continue as normal without obstacles and that power prices would continue to rise. To reverse the trend they were experiencing, they received training on the occurrence and effect of biases in their own and others' judgments, such as how they influence each other's decisions. They gained insight into how the effect of confirmation bias led them to favor information that confirmed their own belief that the investments were the right ones to make.
Debiasing in the Healthcare Sector
In medical practice, biases can lead to misdiagnoses. The daily life of doctors often involves limited time, high work pressure, patients with complex medical conditions, the introduction of new technology, and more. To make faster decisions, doctors often use mental shortcuts (heuristics).
When doctors establish a diagnosis, it's easy to be influenced by availability bias. This is the tendency to assess the probability of something based on how easily or quickly information comes to mind. Doctors might base their decisions on how often or when they last made a diagnosis (Eva & Norman, 2005), or when they last became aware of it. This can lead to an incorrect diagnosis instead of a more probable one (Graber et al., 2005). Studies have shown that doctors are prone to misdiagnosing patients if a diagnosis has received a lot of media coverage and is therefore easily available (easy to remember), or, for example, if they have recently read information about a specific diagnosis before meeting the patient (Schmidt et al., 2014, as cited in Monteiro et al., 2020).
What can it lead to and how can it be solved? Misdiagnoses can lead to treatment errors, fatal patient outcomes, and higher costs. From 2018 to 2021, Norwegian hospitals paid compensation for medical errors to 1,216 hospital patients. Therefore, it's necessary to try to reduce the occurrence of bias for all involved parties (patients, doctors, institutions, and society). To reduce the effect of availability bias, institutions can introduce checklists. This is a known debiasing technique (Ely et al., 2011), which in this context involves implementing checklists to increase critical thinking. It works by making objective information readily available, for example, by providing an overview of a selection of alternative, relevant diagnoses and reminding doctors of common symptoms for different diagnoses.
Become Aware of Biases and How to Counteract Them
It can be absolutely crucial to become aware of biases that occur in your own company and to find different measures that can counteract them. At the same time, it's important to thoroughly evaluate which techniques you want to use. It's always important to experiment with various debiasing techniques to identify what's most effective and best suited to the situation. Furthermore, you must be aware that debiasing is not a quick fix. It's a process, and to succeed, you need to set aside time and resources.
