While we’d like to trust ourselves to make rational decisions, all our thoughts are subject to cognitive biases based on our experiences, assumptions, and preconceived notions. The awareness of these biases are especially critical for senior management and board directors, whose plans and guidance can make or break an organization. In this session, Sameer Kumar, Partner at McKinsey and Company, outlines some of the top cognitive biases most relevant to business leaders.
According to client needs, Kumar delivers 3 primary interventions: procedural (involving process and structure), analytical (Kumar notes that in his experience, this is not as effective in Southeast Asia), and cultural. He emphasized that awareness is only one part of debiasing yourself; another part is to be willing to identify and analyze biases, as well as be willing to change if necessary. Kumar illustrated a case of the sunk-cost fallacy for example, points to the tendency of businesses to stick with an investment long even after it has accrued a large amount of cost. No one wanted to take the blame for the mistake, and hundreds of thousands of dollars were lost each year.
Kumar: “The problem arises when you refuse to be aware of your biases, or when you stop actively thinking that it’s necessary to curb them.”
Biases occur when you rely entirely on your experience to make decisions. Experience or a ‘gut feeling’ can be a useful starting point, but after that, it’s important to get into the details of the issue to prevent any costly mistakes based on faulty reasoning.
Cognitive Biases and Their Impact on Decision-Making
Sameer Kumar, Partner, McKinsey and Co.
The IERP® Monthly Newsletter August 2018 8