In business and in life, we make a vast number of decisions daily that we may not realize are based on assumptions. Due to limits in time, we may not gather all the information necessary to adequately assess our options. Or, there may just not be enough information available to us, or there may be too much information. Sometimes, we must rely on our memory alone to come to a decision. These are common limitations to decision-making, and to get around them, our brains rely on cognitive biases. These are a way recognizing patterns that can make difficult decisions easier. In our busy work days, and especially when running a business, they can be incredibly helpful.
However, because they are a method of decision-making that doesn’t rely on logic, it is possible for these mental shortcuts to cause you to make poor decisions. If you’re a small business owner, you’re aware of how much one small mistake can affect your business. Therefore, it’s essential to be able to recognize when you are making assumptions based on a cognitive bias, even if you can’t eliminate every mental shortcut you make every day.
For example, many business owners struggle with keeping up with their competition. If others in your industry are all investing in a new asset or product, you may feel tempted to do the same. While this may be a wise decision, simply doing something because others are doing it is known as the Bandwagon Effect. This cognitive bias can lead you to do things that aren’t right for your audience or client. Becoming aware of why you want to do something, and conducting your own market research to validate your hunch can help you avoid this bias.
To help you on your business venture, check out this infographic below that Fundera helped create about common cognitive bias traps and how to avoid them:
