Errors in thinking that lead to wrong decisions. Cognitive distortions.

ERRORS IN THINKING THAT LEAD TO WRONG DECISIONS.

COGNITIVE DISTORTIONS

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Reality is not always as you see it! As a company manager, you probably boast of your great ability to make decisions with judgement, but you do not know that that supposed objectivity is always biased by cognitive distortions. But don't worry, these errors in thinking are common to all your fellow human beings, the only difference is that those who know them can decide more freely and wisely. You have called your trusted team for an urgent meeting, the Chinese supplier you have just contracted has failed with the first shipment, causing a stockout in the factory.

When you complain, several of your managers say: "It was coming...". You have to count to ten not to explode in anger. "And if you saw it coming, why didn't anyone say anything? "Because you didn't consult," replies the head of administration. And you know it's true. You remember that you merely took for granted a decision in which two biases in your thinking led you away from reality.

First, that of false consensus: as you did not ask, no one expressed their disagreement and you took their agreement for granted. Y, in second place, The urgency bias was at work, given the need to replace the previous supplier You decided without the usual precaution in the choice of suppliers.

Misinterpretations

These biases can lead us directly to miss essential factual data, to misinterpret facts, to misjudge, to miscalibrate responses. It must be remembered that these false thoughts affect our cognitive and emotional capacity at the same time. Organisations are increasingly aware of the tyranny of biases, and initiatives are beginning to emerge to alleviate their effects. Aiwin, a company specialising in gamification solutions for business management, picked up the 2019 award for Best Digital Work Tech Product.

Recognition for SHE, which offers HR managers a tool designed to "make employees of large multinationals aware of the effect their biases have on day-to-day decisions". Seen from another perspective, defining the biases that favour one company can become a competitive advantage (+). In fact, this analysis has made its way into the business plan of US start-ups. In this case, the analysis is used to define certain company policies, in particular the design of marketing campaigns or the website.

This plays on biases such as the principle of urgency or scarcity. Everyone is more interested in a price reduction with an expiry date, or in a product that is only a few units left in stock. Yes, these are techniques with which telemarketers make the most of these biases, but also internet giants such as Amazon or eDreams.

Your thinking is not objective:

But for the entrepreneur, the important thing is to know that Pure objectivity cannot exist when running a company, because it involves decisions made by human beings. This need not necessarily become a problem, but sometimes it does. The best thing to do is to sit down and 'write objectively' what we believe to be the truth, but also provide evidence, indicators, data and demonstrable arguments. Sometimes this is the only way to assess whether what I am saying is true or not. And if you are one of those entrepreneurs with a keen instinct, the warning is clear: "be careful what you put at risk".

Biases are mental shortcuts, So when we decide too quickly, we let these biases play out, so when we decide too quickly, we let these biases play out, we have a good chance of getting it wrong in decisions, just as we do when we act from emotion. Emotions are not cognitive biases, but they do alter information in terms of how we perceive and value it. The people We react more on the basis of the feeling that an event triggers in us than on the consequences that the event itself triggers, to the ideas we express to ourselves about such events or persons. In recent decades, science has identified an infinite number of thinking biases common to the majority, although it is also true that some become more relevant when acting in the professional sphere or according to gender. Just as a perception.

The imposter syndromethe one that leads to undervaluing one's own potential, leading us to consider ourselves unworthy of the position we hold or to which we are promoted, is a feeling more developed in women. On the contrary, men tend to overestimate their capabilities.

Thinking biases

Knowledge is power. If I know that bias exists I can detect it when it is conditioning me, Therefore, information is the first step to mitigate its effects.

WE TAKE A LOOK AT THE MOST COMMON THINKING BIASES:

  • OPTIMISTIC BIAS

Very common among entrepreneurs, leads to overestimation of possibilities, expectations or scope, underestimating weaknesses and leakage points your project may have.

  • SOCIAL BIAS

Not daring to give an opinion or contradict someone because they have a higher role of power or expertise. When it dominates the dynamics of a business meeting it can trigger wrong decisions.

  • CONFORMITY BIAS

Similar to above, the need of many to look good: leads them to decide the wrong things because they have not dared to contradict you.

  • SUNK COST FALLACY

When you invest in something and despite evidence that it doesn't work, you don't stop. It eliminates as an option to abandon something in which we have already invested time or money. It is not valued as a possible alternative, without considering that what is at stake is not the money already spent but the future investments that this continuity will force. Very rational thinking that this bias overrides, most likely because at the same time it does not want to acknowledge failure.

  • CURSE OF KNOWLEDGE

When what you know prevents you from seeing or correctly assessing what is new. It is a kind of perversion of experience that prevents experimentation with the new, limits innovation.

  • PLANNING FALLACY

We tend to thinking that milestones or achievements will come sooner than they actually do. It is therefore very important that our plans always include contingencies, not least because, as the military say, they will come into contact with the enemy's plans. Take note of this fallacy that explains the early mortality of many companies.

  • EMPATHY GAP

Sometimes we think we are acting in a clear and straightforward manner and What we are doing is destroying the people around us. Sometimes, the entrepreneur is a bit of a pushy person, and so is the entrepreneur, is unable to perceive what is going on around him.

  • IT'S ALL OR NOTHING!

The dichotomous or polarised thinking does not understand half measures. They are those people who can only win or lose by forgoing win-win solutions, where both parties to the agreement benefit.

  • ON GENERALISING

One of the most common errors in thinking. It is well exemplified by the stock market investor who The first purchases are the right ones until they are, convinced that the market always goes up, decides to make a big trade... losing in a single decision the profits. One can also err on the side of pessimism, such as those companies that give up bidding for public tenders on the grounds that "they are always a given".

  • THE FORTUNE TELLER'S MISTAKE

When it is anticipated to go wrong. The greatest danger is that the self-prophecy will eventually come to fruition, perhaps induced by the insecurity that conveys this bad omen. An unfortunate bias in sales negotiations.

  • CATASTROPHISATION

Its most characteristic feature is disproportionate to the importance of the facts. When we think that the poor quality of an ingredient in a dish has ruined the invitation to the meal with which the company wanted to flatter a foreign delegation. On a personal level, it is very much related to a kind of limiting complexes: not being proficient in English prevents doing business abroad, or having little start-up capital; leads the company to success.

  • PERSONALISATION

It consists of self-incrimination of the negative consequences that befall us or even those that befall others. A very stressful and destructive.

  • EMOTIONAL REASONING

When we transform the negative emotions into perceived reality. If automating tasks involves a personal overexertion, I'll stay as I am.

BIAS TIP (+)

EXAMPLES OF THINKING ERRORS THAT CAN AFFECT MENTORS AND LEAD TO WRONG DECISIONS:

  1. Confirmation bias: This bias occurs when a mentor only seeks information that supports his or her ideas and views, and disregards or ignores information that contradicts his or her ideas. This can lead to erroneous decisions because the mentor is not considering all perspectives and possibilities.
  2. Availability bias: This bias occurs when a mentor makes decisions based on the most readily available or most recent information, rather than considering all available options. For example, a mentor may decide to invest in a company only because he or she received a good recommendation from a friend, without doing further research.
  3. Halo effect: This bias occurs when a mentor is influenced by one positive characteristic of a person or company, and then generalises that characteristic to all other areas. For example, a mentor may decide to invest in a company only because the founder has a great reputation, without considering other important factors.
  4. Anchoring bias: This bias occurs when a mentor becomes too attached to an initial idea or information, even if it is not relevant or accurate. For example, a mentor may decide that a business is viable just because the founder has a large amount of start-up capital, without considering other important factors.
  5. Shock bias: This bias occurs when a mentor makes decisions based on the most impressive or dramatic information, rather than considering all available information. For example, a mentor may decide to invest in a company just because the founder has an inspiring story, without considering other important factors such as the market and competition.

In short, mentors can be subject to the same cognitive biases as entrepreneurs and it is important that they are aware of these biases in order to make informed decisions and avoid costly mistakes.

HERE ARE SOME EXAMPLES OF THINKING ERRORS THAT CAN LEAD TO WRONG DECISIONS IN ENTREPRENEURS DUE TO COGNITIVE DISTORTIONS:
  1. Confirmation bias: This thinking error occurs when an entrepreneur only seeks information that confirms his or her beliefs and disregards information that does not. For example, an entrepreneur who believes that his product is perfect may ignore negative customer feedback.
  2. Anchoring bias: This thinking error occurs when an entrepreneur focuses on a single aspect of a problem and uses it as a reference point for making decisions. For example, an entrepreneur who decides the price of his product based on the price of his competitors without considering other factors such as production costs.
  3. Availability bias: This thinking error occurs when an entrepreneur makes decisions based on readily available information rather than seeking additional or more complete information. For example, an entrepreneur who decides to hire someone because their resume is impressive, without further researching their work history.
  4. Optimism bias: This thinking error occurs when an entrepreneur overestimates the possibilities and expectations of his project, ignoring the risks and weaknesses. For example, an entrepreneur who believes that his venture will be a resounding success without considering the challenges of the market and the competition.
  5. Authority bias: This thinking error occurs when an entrepreneur makes decisions based on the opinion or experience of someone perceived as an authority rather than using his or her own judgement and analysis. For example, an entrepreneur who follows the advice of a mentor without considering whether that advice is relevant to his or her current situation.

It is important for entrepreneurs to be aware of these cognitive biases and distortions in order to avoid making wrong decisions that could affect the success of their business.

APPLY THIS TIP TO YOUR PROJECT

TASK

NOW THAT YOU ARE CLEARER ABOUT THE THINKING ERRORS YOU CAN MAKE BECAUSE OF COGNITIVE BIASES, REFLECT:

  • What decisions have you made in the past that were wrong because of your bias?

CASE STUDY OF A MENTOR WHO WANTS TO KNOW HIS AND HIS MENTEE'S BIASES - MENTEE

Juan is an experienced mentor who has worked with several entrepreneurs throughout his career. He is currently working with Ana, a young entrepreneur who has founded a technology startup.

During a mentoring session, John realises that he has been making many decisions on his own without involving Anna in the process. He also realises that he often relies on his own experience and knowledge instead of asking questions and listening to Ana's ideas.

He decides to take a moment to reflect on his biases and how they may be affecting his mentoring relationship with Ana. After some time of reflection, he realises that he has a tendency to be too dominant in his decisions and to not involve Ana enough in the decision-making process.

She also finds that she often assumes that her own ideas are the best and is not considering all possible solutions. On the other hand, Ana has an optimism bias that leads her to be overly optimistic about the results of her startup and to not consider possible obstacles or challenges that might arise.

John decides to address these biases in his next mentoring session and works with Anne to find ways to better balance their perspectives and decisions in the company's decision-making process. Together, they realise that by working as a team and considering all possible solutions, they can make more informed decisions and take the right direction for the company.

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Picture of Jaime Cavero

Jaime Cavero

Presidente de la Aceleradora mentorDay. Inversor en startups e impulsor de nuevas empresas a través de Dyrecto, DreaperB1 y mentorDay.
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