Tips to Avoid Business Decision Errors

Business owners and executives make decision errors when they get so entrenched in their own point of view they don’t see other possibilities.

Bounded awareness is the term for this, and it’s more common than we think. It occurs when cognitive blinders prevent a person from seeing, seeking, using, or sharing relevant and accessible information during the decision-making process.

The term is thought to have been coined by Herbert Simon, Nobel economist. In Models of Man, Simon points out that most people are only partly rational, and are emotional/irrational in the remaining part of their actions. But most people aren’t aware they fall into this trap.

For example, in an earlier post I wrote about one of my clients who doesn’t actually seek advice so much as approval. He actively hunts for and selects only the information he needs to confirm his decision.

Solving problems requires participants to accumulate contradictory, rather than confirming, evidence. Seeking disconfirming information is a powerful approach, but it is rarely a part of our intuitive strategies.

The key to avoiding the trap of bounded awareness is vigilance in considering that the information you use actually addresses every pitfall in the decision you must reach.

To learn more about this, read the January 2006 Harvard Business Review article, “Decisions without Blinders.” Here are a couple of points to keep in mind that will help you take your cognitive blinders off:

  1. Ask for (and listen with an open mind) a contrary opinion. For example, if you present your solution and ask if this sounds reasonable, you are asking for confirmation. Depending on the power differential with the person you’re asking, you’ll likely get what you ask for: agreement and support.
  2. However, if you frame the question so that you show you are truly open to listening to flaws, loop holes and potential problems, then you’ll expand your awareness of the problem and other solutions. You can say, for example, “What are the potential risks and problems that you see if we decide to do XYZ?” Or, “What are we not seeing about this decision?”
  3. Generating contradictory evidence should be part of everyone’s job. But one way to integrate this form of thinking is to assign a “devil’s inquisitor” role to a member of the group. This is not the same as a devil’s advocate, who argues against the status quo. By asking questions instead of arguing an alternate point of view, the devil’s inquisitor pushes people to look for evidence outside their bounds of awareness.

Here are some additional questions to ask:

  • What information do we already know in our organization?
  • What information is relevant to the problem at hand?
  • Is it rational to ignore the information that we have not been using?

Obviously, the more important the problem, the more care you should take to use the most appropriate inputs. Since different people will have different bounds of awareness, getting multiple views will be more apt to yield all the relevant data necessary for a fully informed decision.

Psychologists Dan Lovallo and Daniel Kahneman discuss the wisdom of developing—or buying—an outsider’s perspective in “Delusions of Success: How Optimism Undermines Executives’ Decisions” (HBR July 2003).

Getting an outside view might help you see critical information that you could easily overlook when immersed in day-to-day activities.