Imagine you’re thinking about launching a new service. You think the market is growing, and as part of your research you find information that supports this belief. As a result, you launch the service, backed by a major marketing campaign, but the service fails. The market hasn’t expanded, so there are fewer customers than you expected. You can’t sell enough of your service to cover its costs, and you end up with a loss.

In this scenario, your decision was affected by confirmation bias. You interpreted market information in a way that confirmed your preconceptions—instead of seeing it objectively—and you made the wrong decision as a result.

Confirmation bias is one of many psychological biases to which we’re all susceptible when we make decisions. There is now an enormous body of thinking about this phenomenon, building on the work of the Nobel Prize-winning psychologist Daniel Kahneman and his late collaborator Amos Tversky.

Psychological bias—also known as cognitive bias—is the tendency to make decisions or take actions that go against systematic logic. For example, you might subconsciously make selective use of data, or you might feel pressured to make a decision by powerful colleagues. Psychological bias is the opposite of clear, measured judgment. It can lead to missed opportunities and poor decision-making. Here are five common psychological biases that can lead us to make poor business decisions.

Confirmation bias

As in the earlier example, confirmation bias happens when you subconsciously look for information that supports your existing beliefs. This can lead you to make biased decisions because you don’t factor in all relevant information.

To avoid confirmation bias, look for ways to challenge what you think you see. Seek out information from a range of sources, and consider situations from multiple perspectives. Alternatively, discuss your thoughts with others: Surround yourself with a diverse group of people, and don’t be afraid to listen to dissenting views.


This is the tendency to base your final judgment on information gained early in the decision-making process. For example, when negotiating on price, the initial figure suggested, even if it seems ridiculously high, will often shape the price you end up paying. Think of this as a first impression bias. Once you form an initial picture of a situation, it’s hard to see other possibilities.

To overcome the risk of anchoring affecting your judgment, reflect on your decision-making history, and think about whether you’ve rushed to judgment in the past. Often it is a good idea to ask for more time if you feel pressured to make a quick decision. (If someone is pressing aggressively for a decision, this can be a sign he or she is pushing against your best interests.)

It’s hard to spot psychological bias in ourselves because it often comes from subconscious thinking. For this reason, it can be unwise to make major decisions on your own, without discussing them with other people.

Overconfidence bias

This occurs when you place too much faith in your own knowledge and opinions. You may believe that your contribution to a decision is more valuable than it actually is. You might combine this bias with anchoring, meaning that you act on hunches, because you have an unrealistic view of your own decision-making ability.

To overcome this bias, consider the sources of information you tend to rely on when you make decisions: Are they fact-based, or do you rely on hunches? And to what extent are you relying on your prior successes as a source of insight rather than factoring in failures? If you suspect that you might be depending on potentially unreliable information, try to gather more objective data.

Gambler’s fallacy

With the gambler’s fallacy, you expect past events to influence the future. A classic example is a coin toss: If you get heads seven times consecutively, you might assume that there’s a higher chance that you’ll toss tails the eighth time; and the longer the run, the stronger your belief may be that things will change the next time. Of course, the odds are always 50/50.

The gambler’s fallacy can be dangerous in a business environment. Imagine you’re an investment analyst in a highly volatile market. Your four previous investments did well, and you plan to make a new, much larger one because you see a pattern of success. In fact, outcomes are highly uncertain, and the number of successes that you’ve had previously has only a small bearing on the future.

To avoid the gambler’s fallacy, make sure that you look at trends from a number of angles. Drill deep into data, and try to develop a realistic view of future odds. If you notice patterns in behavior or product success—for example, if several projects fail unexpectedly—look for trends in your environment, such as changed customer preferences or wider economic circumstances.

Fundamental attribution error

This is the tendency to blame others when things go wrong instead of looking objectively at the situation. In particular, you may blame or judge someone based on a stereotype or a perceived personality flaw.

For example, if you’re in a car accident and the other driver is at fault, you’re more likely to assume that he or she is a bad driver than you are to consider whether bad weather played a role. However, if you have a car accident that’s your fault, you’re more likely to blame the brakes or the wet road than your reaction time.

To avoid this error, it’s essential to look at situations, and the people involved in them, nonjudgmentally.

Use empathy to understand why people behave in the ways they do and build emotional intelligence so that you can reflect accurately on your own behavior.

Excerpted with permission of the publisher, Wiley, from Mind Tools for Managers by James Manktelow and Julian Birkinshaw. © 2018 by Wiley. All rights reserved. This book is available wherever books and ebooks are sold.