Most people try to look for the good. But despite our best intentions, we often fall prey to biases. While biases can result in both positive and negative outcomes, there is no doubt that they impair our decision-making ability. It is even more dangerous when CEO biases come into the picture.
Popular author and self-help guru Dale Carnegie once said, “When dealing with people, remember you are not dealing with creatures of logic, but with creatures bristling with prejudice and motivated by pride and vanity.”
Self-awareness and a trusted circle of confidantes is key to combating biases in our personal and professional lives. Only when we trust someone will we listen to what they have to say — however harsh the feedback may be.
The three common CEO biases that affect leaders are given below.
While it is not easy to admit our biases, let us take a look at the common biases that affect those in authority.
Optimism Bias
The optimism bias lets people think that they are more likely to experience positive events over negative ones. CEOs sometimes fall prey to this bias when they see things going a certain way.
At the root of this bias is the illusion that we have some form of control over our future. Even when things derail, some CEOs rally their teams to continue working on dead-ends and hope for the best.
One recent example of optimism bias in most organizations is the debacle that over-hiring created. Despite facing rising inflation and economic uncertainties, most companies went ahead with expansion plans and hoped things would get better. One of the most dangerous CEO biases, being overly optimistic can distance you from the reality of the world and prevent you from taking steps to correct the situation.
Sunk Cost Fallacy
Another one of CEO biases that can impact any entrepreneur is the sunk cost fallacy. We have come so far, we can make it out of this mess. Many small and large business owners have recited this mantra to themselves, even when they see no way out of the situation.
The sunk cost fallacy is the inability to let go of a course of action or strategy because of past investments, even when it is clear that letting go is more beneficial in the long run.
We see people grappling with the sunk cost fallacy in everything from relationships to business decisions.
Sometimes, business executives mistake sunk cost fallacy for grit and stick with what they have been doing. The decision to go ahead with a cash-burning project because the company has invested thousands in it is an example of sunk cost fallacy.
Illusory Correlation
We all look for a cause-and-effect answer when things do not go our way. To draw parallels when there is none and make an unproven connection is what is called an illusory correlation. You see a connection between two independent variables because you want to.
In CEO biases, illusory correlation appears to be a never-seen-before insight and as the connection cannot be proven, it is a mistake to base future decisions on it.
Illusory correlation can cause leaders to overemphasize on one variable and ignore other more powerful ones. It can negatively impact business plans and derail growth as we let our assumptions (read unscientific deductions) run our future.
Many sportspersons carry a specific item or a certain color on match day. They believe that the article will bring them luck and help them perform better.
Conclusion
Research has repeatedly shown us that we tend to overestimate the importance of events we can easily recall while underestimating the ones we cannot. This is why it is important to base our decisions on data-driven methods and avoid letting out perceptions cloud our judgment.
Whether conscious or unconscious, to remove biases, we first need to recognize their existence and educate ourselves on their effects. Biases often have a huge impact on one’s belief systems and opinions. These in turn cloud our world view and pull us in a completely different direction.
When leaders operate from a place of bias, it automatically impacts the overall health of an organization. While it is tough to see our blind spots, it is easy to listen to feedback. One way to deal with CEO biases or prejudice of any nature is to be open to constructive criticism. Being receptive to feedback and relying on data-driven models will prevent us from making regrettable mistakes and challenge us to better ourselves.
