Last updated July 3, 2024

Decision-making biases are common because we are all influenced by our background, lifestyle and ways of thinking. We can also be the person who experiences bias and it can affect different areas of our life. Let’s take a look at some of the most relevant decision making biases.

Decision-making biases that are common
>> from the Decision Making Training Course Materials by Dr Valeria Lo Iacono

Above you can see the 8 most common decision making biases in visual form. So let’s now discuss each.

Types of Decision-Making Biases

1. Escalating Commitment

‘Escalating commitment’ bias refers to the tendency to keep committing resources to a course of action, even when it is clearly failing.

To give a brief example, imagine a work situation where a manager is so committed to something (i.e. has already invested so much on a new I.T. system) that s/he doesn’t know when to abandon it, even when costs spiral and the system clearly doesn’t work and it is unlikely to.

In this case, instead of changing course and cutting your losses, you keep committing even more to a bad decision. This is what we mean by Escalating Commitment bias.

This is a common phenomenon, which takes place because we are often unwilling to admit that we have made the wrong decision and we hope that, by some miracle, things will eventually get better.

Escalating commitment can lead to what in business is called the sunk cost trap.

Sometimes, managers are too scared to admit they made the wrong decision. So, they stick with it and keep pouring resources into failed projects.

2. Loss aversion

Loss Aversion is a term you might be familiar with as many of us have this bias.

It refers to our tendency to try and avoid possible losses, rather than going after potential gains.

This phenomenon can also lead to preferring the status quo instead of change, whereby we would rather stick with what we know, even if it means forfeiting possible improvements.

Example

To give an example. Ross is a marketing manager for a shoe shop.
Ross has a new set of high-tech shoes to promote and lots of them in stock to sell, but Ross is hesitant to launch a bold new advertising campaign even though initial research suggests that the campaign could be highly successful if launched (if he proceeds soon).
To put it mildly, Ross is risk-averse and fears investing a significant budget to run the campaign. He is worried that if the campaign did not work, he could look foolish and maybe would even need to pay off staff.
Rather than using calculated risk as a manager, Ross ignores the market research and does not run the campaign. Why risk losing money, he says to himself.
This conservative approach, driven by loss aversion, results in fairly stagnant sales for the new range and limits the company’s opportunity for possible growth.
This unwillingness led to Ross not lasting very long in his management role and he moved into a different job, becoming a personal trainer in a local sports centre.

3. Overconfidence

Confidence without question is an important attribute as a manager and employee.

Overconfidence though, can lead you to:

  • overestimate your abilities and your chance of success and rewards
  • underestimate your chances of failure or risks.

Overconfidence, in other words, can lead to bad decision-making and this can be one of the hardest decision-making biases to get people to fix.

4. Confirmation Bias

Almost all of us are guilty of confirmation bias from time to time.

Rather than believe that we are wrong about something, the natural instinct is to connect with people, read media or listen to things that we know will match what we want to believe.

Confirmation Bias can happen when you only consider information that confirms your beliefs.

Confirmation bias can also happen if there is a solution that is particularly appealing to you, such that it leads you to only consider the evidence in favour of that solution. As a result, you ignore all the evidence against it.

5. Anchoring

This is a type of bias that pushes you to give disproportionate importance to the first piece of information you receive, and it is linked to the first impressions received.

A way in which this can be encountered when making decisions in business is by giving too much weight to past trends and events.

This is a trap to be aware of because sometimes past events repeat themselves but other times they do not.

So, it is extremely important to keep an eye on current conditions that may make it unlikely that an event will take place again in the same way as it did in the past.

As you can see, anchoring can greatly cloud our judgement and is one of the types of biases in decision making that is also quite common.

6. False analogy

This is when we assume that a situation is exactly like another situation we have encountered or witnessed before, ignoring the differences.

In a construction company, Alfred is the manager and he pushes strongly to use a new type of eco-friendly building material by comparing it to the company’s recent switch to energy-efficient lighting.
Alfred states “Switching to energy-efficient lighting reduced our electricity costs, so using this new building material will reduce our construction costs.”
This is a false analogy though.
While the energy-efficient lighting provided immediate cost savings, the new building material involves a different set of variables, such as expected higher initial costs, changes in construction techniques, and untested long-term durability.
Assuming that the new material will yield similar benefits as the lighting based on this superficial comparison is flawed. The company subsequently experiences increased costs and delays, revealing the mistake in comparing the two situations.

7. Vividness

This type of bias takes place when we are swayed by something that has a vivid impact on us, ignoring the rest of the impacts.

For example, an impactful sales pitch that highlights the benefits of a product in an almost theatrical way can sway your decision in favor of that product, because of the impact that the presentation has on you.

This may be a problem if you then rely on that presentation only to make your decision, without considering the evidence to support it.

When it comes to decision-making biases, how can we avoid vividness given how powerful and influential marketing is as an industry?

We are all influenced by a vividness bias but when making key decisions, try to think about if your judgement is being affected by vividness.

8. Availability

Availability bias refers to only paying attention to the most easily available information received (usually the most recent), thus failing to consider other important data just because they are not as easily available.

You might, for example, without being consciously aware of it, only pay attention to the information received at the most recent conference you attended, without searching for more supporting evidence.

Decision-making training materials

>> See the Decision-Making Course Materials for teaching this topic

Examples of Decision-Making Bias

Let’s look at a couple more examples relating to the decision making biases that we have already discussed.

Escalating Commitment Bias Example

In a large sports centre, Victoria, the daytime manager, is in charge of overseeing the maintenance and upgrades for the facility. A year ago, she hired a company to install CCTV around the centre, after a few problems in the areas.

With initial installation costs high, Victoria felt the long-term benefits made it worthwhile, i.e. it would entice new users if the grounds were made safer.

There was a problem though with the installation and in essence, the system did not work.

Any attempt to repair the CCTV system would be more expensive but given the money Victoria had already allocated to the security system, because she didn’t want to back out, she spent even more money on trying to have it repaired.

In the end, the system never worked and was abandoned.

So Victoria proceeded with further spending on the system, driven by escalating commitment bias.

She was afraid to abandon the project because of the investment already made and she thought she’d look foolish if she abandoned it and lost money. Victoria stubbornly was determined to make it work.

Over the next few months, some members left because of safety concerns. In the end, senior management got involved and introduced a more basic CCTS system. It was installed and worked well.

Victoria’s reluctance to ditch a failing project, due to escalating commitment bias, led to further wasted resources.

Confirmation Bias Example

At a large local supermarket, Sherrie is the inventory manager and her job is to ensure that the right products are chosen, to maximise sales.

Her intuition strongly tells her that organic products will really help to drive customer loyalty and help to boost profits.

To support her belief, Sherrie focuses on data that confirms her perspective, such as the rising trend in organic food sales nationwide and positive customer reviews about their organic products.

Sherrie tells her team to provide more shelf space for organic products and to run a campaign to promote these products she is sure will do really well.

What Sherrie has chosen to ignore are the warnings from her staff who have constantly been given feedback from customers that they feel that the products are over-priced.

She has also chosen to ignore the less favourable reviews and focused only on the good ones.

Sherrie dismisses the concerns of her colleagues, believing that they are a minority of voices and not reflective of broader customer preferences.

Confirmation bias also leads Sherrie to selectively analyse sales reports, highlighting the successes of the organic products while ignoring or downplaying the difficult-to-move inventory.

In fact, they had to mark down the price of a lot of the organic stock, to get rid of it before it was out of date.

Sherrie also overlooked key market research that had already been done by her predecessor that showed that the local community values affordability over organic options.

Months pass, and the overall sales growth is stagnant. Non-organic product sales have declined due to reduced shelf space, and some regular customers have shifted to competitors for their shopping needs.

Sarah’s focus on confirming her initial belief about the superiority of organic products resulted in a skewed strategy that didn’t align with the actual preferences and purchasing power of the supermarket’s customer base.

Higher management, after a sales review, overturned Sherrie’s decisions over the level of organic shelf space.

In this case, Sherrie’s cognitive bias hindered her decision-making.

Decision Making PowerPoint PPT slides and materials
>> Decision Making Training course materials (with PowerPoint slides)
Dr Valeria Lo Iacono
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