Small-business owners have to make a wide variety of important decisions every day. As much as we'd like to think we're always rational and making the best choices for our business, that's often not the case. A variety of behavioral and psychological biases affect the way we think, interact with others and make choices. Here are a few to be conscious of and avoid, as well as some tips to improve your business' decision-making process.
1. Searching for the "best" option can be a waste of time. When trying to make a decision, our first instinct is often to gather as much information and as many options as possible. At a certain point, it can become a crutch used to avoid making a hard choice. Research shows that people frequently spend so much time looking for alternatives that it outweighs any benefit of having more options.
Try giving yourself a predetermined amount of time for decisions, and stick to it.
2. Don't think you can read someone's mind. You perceive yourself very differently than how others view you, and vice versa. People tend to look at themselves in a very microscopic way and with a long-term view, while they view others in a more short-term, general way. That can lead us to make errors when we try to imagine what other people are thinking. Try being aware of that the next time you're attempting to take some else's perspective.
3. Think like a weather forecaster. Anyone who's stuck outside without an umbrella after bad advice from a weatherman might find this surprising, but weather forecasters actually have some of the highest risk intelligence ever measured. The secret is in that they constantly have to tack a probability onto their opinions (a 75 percent chance of rain, for example) which keeps them more honest about their biases.
4. People don't know as much as you think they do. When they are feeling uncertain about what to do or dealing with a new situation, business owners tend to look at other, more established competitors and imitate them. That's often a mistake. People have an ingrained tendency to overestimate the value of the information other people have. Research has found that tendency can persist even when people learn that their counterparts have bad information.
5. Watch out for false consensus. When deciding when others are trustworthy, we imagine ourselves in the same situation. That means trustworthy people assign trustworthy qualities to people who may not deserve it. This 'false consensus' effect is particularly powerful, it persists even after someone's been contradicted in their assumptions. Use outside information when deciding whom to trust, not your own feeling.
6. Close your eyes for a minute. It sounds odd, but it turns out that closing your eyes really does lead to making better decisions. Research found that when people close their eyes, its easier for them to act out decisions and their consequences in their heads, which leads to more ethical choices.
7. Don't overestimate hot streaks. Behavioral economist Matthew Rabin finds that people underestimate short streaks but overestimate longer ones. When things are going well, be extra cautious.
8. A small reward can make a tough choice easier to swallow. When making a difficult decision, like whether to invest in a near-term but lower-payoff investment for your business or a more distant, higher-payoff one, it becomes easier to make the long-term choice if you move a small amount of that payoff up front as a gift to employees or yourself. Splurge a bit now, but use that to make the tougher choice.
9. Don't just confirm what you want to hear. You often hear about the danger of "yes-men" in business, the people who just tell you want you want to hear to curry favor. The worst "yes-man" is yourself. Whenever people get new information, they tend to mold it to fit their current viewpoint, and become overconfident because they think they've backed up an opinion with fact. Look at information objectively, not the way that's most comfortable.
How do you confront a tough decision?