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How to tackle cognitive biases and make smart decisions

We like to think our decisions are infallible. We hope that when we've picked a direction, it’s the right one. But research shows we're often guided by error when we’re determining what to do. These errors are built upon experience, flawed perceptions, and the desire to preserve ourselves and our already existing opinions.

So what can we do?

While no decision making process is ever flawless, we can make ourselves aware of some of the more common mistakes people make. Once we know where most people trip up, we can step forward with more confidence.

Here are seven cognitive biases everyone can work to prevent:

Self-serving Bias

David Ogilvy, who is known as the father of advertising, once said: ‘we all have a tendency to use research as a drunkard uses a lamp post, for support but not for illumination’.

Many of us already have set opinions and attitudes. It makes sense, then, that when we make decisions they’re based on information that fits our world view. For many this takes the form of cherry-picking data which suits an opinion. If you’ve ever scrolled through a few pages of Google to find evidence of something you remember hearing, you’re probably falling victim to a self-serving bias: after all, you’ve ignored the results on the front page because they didn’t suit you.

If you want to avoid making a bad decision based on this bias, you need to critically think about why you want to make a decision, and actively listen to the people who suggest it might not be a good idea.

The Halo Effect

We tend to make a lot of assumptions very quickly. If we meet someone who is well dressed, we might assume that they work hard, are intelligent, and are therefore trustworthy. Research has already proven that we associate attractiveness with competence.

If you’re making a lot of assumptions based on one thing, think again. Assume nothing, and make sure that you’re not just chasing something up because you’ve seen it work for someone else.


There’s a psychological experiment: A man sits in a room and is handed three straws. One is significantly longer than the other: there’s no mistaking it. Unknown to him, the other people in the room are paid actors. The researcher in the front asks each person to hold up and point to the longest straw. The man looks around, in surprise, as his perceived peers confidently hold up the middle straw. He hesitates for a minute, and then too raises the middle straw.

Groupthink, in which people adopt the attitudes and opinions of their peers to avoid friction, is a shockingly common phenomenon. Because of this cognitive bias, often irrational solutions are approved by whole teams of people.

To make sure you don’t fall into this trap, encourage everyone on your team to speak up and be heard: and don’t stay silent if something isn’t sitting right.

The Sunk-Cost Fallacy

Have you ever finished a television show, even if it became terrible halfway through? Or noticed that you couldn’t give up on a project, even when it was clearly failing?

The sunk-cost fallacy is the tendency people have to let past costs impact future decisions. They believe that because they’ve spent x amount of money and time on a project, they can’t abandon it. They fear losing face, they fear losing the time they’ve already spent, and they’re often overly invested.

But if you wouldn’t start a project today that you’ve been working on tirelessly, you need to ask yourself whether it’s something that’s worth continuing. There’s no use throwing good money after bad: if you’re being overly influenced by the history of a project, you might need to make a hard decision and let it go.

Overconfidence Bias

If you win the lottery ten times in a row, you might begin to believe you’re simply better at buying lottery tickets than other people, or that you’re intrinsically luckier. Once you begin to feel untouchable, you slip up: everyone can make a mistake and lose what they’ve built.

To overcome the overconfidence bias, you need to challenge yourself constantly, remain a little sceptical, and ask yourself a key question: is my confidence justified?

Affect Heuristic

Affect Heuristic is the tendency people have to use emotions to make decisions. If they consider something a good thing, they’re likely to think it will be easier to accomplish than it really is, and have lower risk associated.

If you think something is great (or terrible!) take the time to ask yourself if you’re being impacted by emotional bias. We commonly chase up ideas that don’t make much sense just because we like the idea of them; the same way we disregard logical progression because it seems unpleasant.

Loss Aversion

Loss aversion is the economic theory that a person will feel sadder losing $100 than they would be happy gaining $100. Instead of taking risks, those suffering from loss aversion will always play it safe, choosing options with lower returns but higher security.

While this is alright in theory, loss aversion can seriously damage the earning potential of businesses. It can also result in people holding onto assets, even if they’re operating at a loss: for instance, a business may refuse to sell outdated equipment and upgrade, as they won’t be able to sell the equipment for as much as they bought it for.

Tackling loss aversion can result in higher long-term gains, and it’s essential for business growth.


While there’s no secret formula to perfect decision making, keeping these cognitive biases in mind can help you avoid preventable mistakes and choose the best options for your business.

- Lena Klein

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