The document discusses cognitive biases that can negatively impact strategic decision making. It explains that biases are human tendencies that cause irrational deviations from rational decisions. There are two main categories of biases - emotional biases caused by feelings and cognitive biases caused by incomplete information or inability to analyze data properly. The document identifies 9 common cognitive biases, provides examples of each, and suggests that understanding and managing biases can lead to more logical decisions. It also presents 5 "building blocks of behavioral strategy" that can help decision makers recognize and counteract biases.
Beyond the Five Whys: Exploring the Hierarchical Causes with the Why-Why Diagram
De-Bias Decision Making
1. 10/31/2019 Building Blocks of Behavioral Strategy: How to De-Bias Your Decision Making Process | flevy.com/blog
flevy.com/blog/building-blocks-of-behavioral-strategy-how-to-de-bias-your-decision-making-process/ 1/15
evyblog
Flevy Blog is an online business magazine
covering Business Strategies, Business
Theories, & Business Stories.
MANAGEMENT &LEADERSHIP STRATEGY,MARKETING,SALES OPERATIONS&SUPPLYCHAIN ORGANIZATION&CHANGE IT/MIS Other
Building Blocks of Behavioral Strategy: How to De-Bias
Your Decision Making Process
Contributed by Mark Bridges on September 25, 2018 in Management & Leadership, Strategy, Marketing, & Sales
Psychology of Product
Adoption
46-slide PowerPoint presentation
Behavioral Strategy Primer
22-slide PowerPoint presentation
Theory of Planned Behavior
11-slide PowerPoint presentation
Building Blocks of Behavioral
Strategy
29-slide PowerPoint presentation
While making critical decisions, not many strategists are conscious of the impact that cognitive biases have on business decisions. These
biases are part of human behavior, and can be referred to as “systematic human tendencies to deviate from rational calculations.”
In strategic decision making, leaders need to recognize their own biases, as these biases influence important strategic decisions made by the
smartest managers in the best companies. Understanding these biases is also foundational to behavioral economics. Two broad categories of
biases cause the people to drift from rational decision-making:
Emotional Biases
Cognitive Biases
2. 10/31/2019 Building Blocks of Behavioral Strategy: How to De-Bias Your Decision Making Process | flevy.com/blog
flevy.com/blog/building-blocks-of-behavioral-strategy-how-to-de-bias-your-decision-making-process/ 2/15
Emotional biases entail taking action on feelings instead of fact, or making emotionally
driven decisions rather than logical ones—i.e., a person’s inclination to believe in something
that has a positive emotional effect or that gives a pleasant feeling, even if evidence
contradicts it. Cognitive biases, on the other hand, arise due to incomplete information or
the inability to analyze the available data. These preconceived notions can be categorized as
either Belief Persistence or Processing Errors. Belief Persistence occurs when individuals try
to shun the conflict in mind that occurs when facts contradict their existing beliefs.
Processing errors occur due to failure in organizing and analyzing data properly.
The awareness and the ability to manage cognitive biases assists the decision makers in
making more logical decisions. The following are the 9 most common Cognitive Biases that
occur most frequently and have the largest impact on business decisions:
1. Conservatism Bias
2. Base Rate Neglect
3. Confirmation Bias
4. Sample Size Neglect
5. Hindsight Bias
6. Anchoring and Adjustment
7. Mental Accounting
8. Availability Bias
9. Framing Bias
3. 10/31/2019 Building Blocks of Behavioral Strategy: How to De-Bias Your Decision Making Process | flevy.com/blog
flevy.com/blog/building-blocks-of-behavioral-strategy-how-to-de-bias-your-decision-making-process/ 3/15
4. 10/31/2019 Building Blocks of Behavioral Strategy: How to De-Bias Your Decision Making Process | flevy.com/blog
flevy.com/blog/building-blocks-of-behavioral-strategy-how-to-de-bias-your-decision-making-process/ 4/15
1. Conservatism Bias: This happens when people give more importance to pre-existing (archived) information over new data. New
information should be cautiously evaluated to determine its value prior to reaching a business decision.
2. Base Rate Neglect: The exact opposite of conservatism bias, in Base Rate Neglect people prefer new information over original
information. For instance, if given related general information and specific data, the mind tends to ignore the former and favor the latter.
3. Confirmation Bias: This occurs when we fail to search impartially for evidence—overweigh evidence consistent with our existing
beliefs while ignore the one that is against a favored belief.
4. Sample Size Neglect: An error that occurs when an individual infers too much from a very small sample size or information. In order
to make meaningful statistical inference from a data set, the sample size must be large enough to be significant.
5. Hindsight Bias: The tendency of people to overrate their ability to forecast an outcome that could not possibly have been predicted.
This occurs when people identify actual outcomes as expected, but only after the fact.
6. Anchoring and Adjustment: An error caused when a specific target number or value is used as a starting point—the anchor—and
then adjustments are made until an acceptable value is reached.
7. Mental Accounting: A set of cognitive operations used by individuals to arrange and keep track of financial activities. They earmark
certain funds for certain goals and keep them separate. Individuals are likely to make illogical decisions in their spending and investment
behavior.
8. Availability Bias: The phenomenon where decision makers give preference to information and events that are more recent.
Availability bias distorts perceived future probabilities based on notable past events.
9. Framing Bias: A tendency to process the same information differently depending on how it is presented. Individuals make a certain
decision if an option is presented in terms of loss, but decide otherwise if the same option is stated in terms of profit.
Experienced executives are able to discern biases and make allowances for those—by applying a discount factor—to adjust for someone’s over-
optimism or seek neutral opinion to avoid biased suggestions. But, at times, these adjustments are also inaccurate. These biases in corporate
decisions are a product of behavior, training, culture, and human nature.
A global McKinsey study conducted in 2009 about the quality of executive judgment and decision making revealed that out of the 2,207
executives only 28% considered the quality of strategic decision making in their organizations to be satisfactory. About 60% of the
participants believed that bad decisions were just as likely as good ones, while rest of the 12% thought that good decisions were rare in their
companies.
Sound judgment and strategic decision making necessitates 3 key elements:
5. 10/31/2019 Building Blocks of Behavioral Strategy: How to De-Bias Your Decision Making Process | flevy.com/blog
flevy.com/blog/building-blocks-of-behavioral-strategy-how-to-de-bias-your-decision-making-process/ 5/15
Gathering facts and analysis
Perceptions and judgments of executives (company or industry variables)
A thorough decision making process
Better strategic decisions necessitate attempts at limiting our biases as well as establishing a decision making process that can challenge
various biases and minimize their effect. The process for strategic decision making requires an understanding of the 5 Building Blocks of
Behavioral Strategy to help nullify biases:
1. Counter Pattern Recognition Biases by Reframing the Perspective
2. Counter Action-oriented Biases by Recognizing Uncertainty
3. Counter Stability Biases by Changing Things Up
4. Counter Interest Biases by Making Them Explicit
5. Counter Social Biases by Depersonalizing Discussions
6. 10/31/2019 Building Blocks of Behavioral Strategy: How to De-Bias Your Decision Making Process | flevy.com/blog
flevy.com/blog/building-blocks-of-behavioral-strategy-how-to-de-bias-your-decision-making-process/ 6/15
7. 10/31/2019 Building Blocks of Behavioral Strategy: How to De-Bias Your Decision Making Process | flevy.com/blog
flevy.com/blog/building-blocks-of-behavioral-strategy-how-to-de-bias-your-decision-making-process/ 7/15
Interested in knowing more about how these 5 Building Blocks of Behavioral Strategy provide useful practices to neutralize biases and help
ensure unbiased decision making? You can learn more and download an editable PowerPoint about the Building Blocks of Behavioral
Strategy here on the Flevy documents marketplace.
Are you a management consultant?
You can download this and hundreds of other consulting frameworks and consulting training guides from the FlevyPro library.
Readers Are Also Interested in These Resources
Psychology of Product
Adoption
46-slide PowerPoint presentation
Behavioral Strategy Primer
22-slide PowerPoint presentation
Theory of Planned Behavior
11-slide PowerPoint presentation
Building Blocks of Behavioral
Strategy
29-slide PowerPoint presentation
Nudge Theory (Behavioral
Economics)
58-page Word document
Nudge Theory: Key Challenges
20-slide PowerPoint presentation
About Mark Bridges
Mark Bridges is a Senior Director of Strategy at Flevy. Flevy is your go-to resource for best practices in business management, covering
management topics from Strategic Planning to Operational Excellence to Digital Transformation (view full list here). Learn how the Fortune
100 and global consulting firms do it. Improve the growth and efficiency of your organization by leveraging Flevy's library of best practice
methodologies and templates. Prior to Flevy, Mark worked as an Associate at McKinsey & Co. and holds an MBA from the Booth School of
Business at the University of Chicago. You can connect with Mark on LinkedIn here.
View all posts by Mark Bridges →
8. 10/31/2019 Building Blocks of Behavioral Strategy: How to De-Bias Your Decision Making Process | flevy.com/blog
flevy.com/blog/building-blocks-of-behavioral-strategy-how-to-de-bias-your-decision-making-process/ 8/15
Post to Facebook
Add to LinkedIn
Post to Twitter
9. 10/31/2019 Building Blocks of Behavioral Strategy: How to De-Bias Your Decision Making Process | flevy.com/blog
flevy.com/blog/building-blocks-of-behavioral-strategy-how-to-de-bias-your-decision-making-process/ 9/15
4 Ways to Improve Customer Communication
1 comment • 3 years ago
Avatar
24Task — Your blog is really a well-explained piece of information
about Hire Virtual Assistant. Working with 24Task a virtual
assistant can completely change the way that you – and your
Want to Train Your Staff on Lean and Organizational
Excellence?
1 comment • 4 years ago
Avatar
Steven Bonacorsi — We are discussing Training Your Staff on
Lean and Organizational Excellence on the LinkedIn Lean Six
Sigma Group https://www.linkedin.com/gr...
The Best Data Solutions for Your Business
1 comment • 3 years ago
Avatar
BlueMule55 — Is there some reason why you "followed" me?
Chicken or Egg: Certification or Experience in Business
Analysis?
1 comment • 3 years ago
Avatar
JanBask Training — Thanks for sharing a wonderful article about
business analyst.
Keep it up!
ALSO ON FLEVY BLOG
0 Comments Flevy Blog Login1
t Tweet f Share Sort by Best
LOG IN WITH
OR SIGN UP WITH DISQUS
Name
Start the discussion…
?
Be the first to comment.
Subscribe✉ Add Disqus to your siteAdd DisqusAddd Disqus' Privacy PolicyPrivacy PolicyPrivacy🔒
Recommend
10. 10/31/2019 Building Blocks of Behavioral Strategy: How to De-Bias Your Decision Making Process | flevy.com/blog
flevy.com/blog/building-blocks-of-behavioral-strategy-how-to-de-bias-your-decision-making-process/ 10/15
FEATURED DOCUMENTS
ITIL Event Management Process
26-slide PowerPoint presentation
ITIL v3 Event Management Process is a part of ITIL v3 Service Operation publication. This Document contains detailed description of the ITIL v3 Event Management Process, including: - Key
definitions - Purpose and Objectives - Scope - Value [Read More]
ITIL Lifecycle Poster (ITIL v3-2011)
1-page PDF document
ITIL v3 - 2011 Lifecycle Poster - printable in A1, A2, A3 Poster describes ITIL Lifecycle model: Service Strategy, Service Design, Service Transition, Service Operation and Continual Service
Improvement. Poster includes all ITIL [Read More]
POPULAR DOCUMENTS ON FLEVY
Digital Transformation Strategy
118-slide PowerPoint presentation
ITIL 4 Poster (ITIL 4 - 2019, ITIL 4 SVS) - New
2-page PDF document
1000+ Consulting Diagrams, Templates, Graphics & Icons
1125-slide PowerPoint presentation
Get Your Cloud Strategy Right
170-page PDF document
11. 10/31/2019 Building Blocks of Behavioral Strategy: How to De-Bias Your Decision Making Process | flevy.com/blog
flevy.com/blog/building-blocks-of-behavioral-strategy-how-to-de-bias-your-decision-making-process/ 11/15
Complete Business Frameworks Reference Guide
388-slide PowerPoint presentation
875+ High Impact Presentation Templates
878-slide PowerPoint presentation
Project Quality Management v1
121-slide PowerPoint presentation
Commercial Due Diligence (CDD)
63-slide PowerPoint presentation
Complete Guide to Value Creation
101-slide PowerPoint presentation
Explication detaillee des Bonnes Pratiques Maintenance
302-slide PowerPoint presentation
POPULAR ARTICLES
12. 10/31/2019 Building Blocks of Behavioral Strategy: How to De-Bias Your Decision Making Process | flevy.com/blog
flevy.com/blog/building-blocks-of-behavioral-strategy-how-to-de-bias-your-decision-making-process/ 12/15
14 Principles of Lean Toyota Production System (TPS)
Editor's Note: Charles Intrieri is a consultant with over 25 years of experience in Operational Excellence, Supply Chain & Logistics, and Metrics-driven Ma...
The 8 Most Critical Levers to Managing and Sustaining Change
Most Transformation initiatives fail to achieve their anticipated objectives. Change Management is all about engaging and rallying people at all levels ...
Top 4 Time Wasters Identified and Ways to Increase Productivity
Time management is the act or process of planning and exercising conscious control over the amount of time spent on specific activities, especially to incr...
7 Steps to Produce a Strategy-on-a-Page (SoaP)
Every year you are asked to assess the previous year’s business performance and update your strategies to meet the needs of a changing environment, includi...
4 Effective Ways to Manage Resources More Efficiently
All workplaces are an integration of numerous departments working together as one to ensure the business runs smoothly. Almost every sector is reliant on o...
Taking Innovative Steps to Problem Solving: The Flexons Approach
Do you find problem solving so mind breaking? That when we crack our heads to find solutions, we often end up with the same solution all over again? As Alb...
Managing Performance by Leveraging the Organizational Health Index (OHI)
The typical approach to improving productivity focuses on assessing variance in quality, time, rate, service, or cost, around which management systems deve...
13. 10/31/2019 Building Blocks of Behavioral Strategy: How to De-Bias Your Decision Making Process | flevy.com/blog
flevy.com/blog/building-blocks-of-behavioral-strategy-how-to-de-bias-your-decision-making-process/ 13/15
COMPLIMENTARY BUSINESS TRAINING GUIDES
What is Business Strategy without How can we anticipate & manage
Embed View on Twitter
Tweets by @flevydocs
1h
[Free Download] #Cybercrime and IT Risks flevy.com/download/tweet…
Comprehensive Guide to #FinancialStatementAnalysis - 89-slide deck
Flevy.com
@flevydocs
Flevy.com
@flevydocs
14. 10/31/2019 Building Blocks of Behavioral Strategy: How to De-Bias Your Decision Making Process | flevy.com/blog
flevy.com/blog/building-blocks-of-behavioral-strategy-how-to-de-bias-your-decision-making-process/ 14/15
proper Execution?
Many companies develop robust strategies, but
struggle with operationalizing their strategies into
implementable steps. This presentation from flevy
introduces 12 powerful business frameworks
spanning both Strategy Development and Strategy
Execution. [Learn more]
BIG Organizational Change?
This 48-page whitepaper, authored by consultancy
Envisioning, provides the frameworks, tools, and
insights needed to manage serious Change—
under the backdrop of the business lifecycle. These
lifecycle stages are each marked by distinct
attributes, challenges, and behaviors. [Learn more]
Want to save hours on your future
presentations?
We've developed a very comprehensive collection
of Strategy & Transformation PowerPoint templates
for you to use in your own business presentations,
spanning topics from Growth Strategy to Brand
Development to Innovation to Customer
Experience to Strategic Management. [Learn more]
Do you work in Operational
Excellence or Lean Six Sigma?
We have compiled a collection of 10 Lean Six
Sigma templates (Excel) and Operational
Excellence guides (PowerPoint) by a multitude of
LSS experts. These tools cover topics including 8
Disciplines (8D), 5 Why's, 7 Wastes, Value Stream
Mapping (VSM), and DMAIC. [Learn more]
RECENT ARTICLES BY CORPORATE FUNCTION
MANAGEMENT &
LEADERSHIP
Finding Corporate
Philanthropy a Challenge? Let
This Primer Guide You
How to Achieve GREATER
VALUE in M&A? Do the
Fundamentals of Post-merger
Integration
OK, the Merger's Done. How
Do We Secure the Promised
Revenue Synergies?
Why PLUS Decision Making
Model is Essential to Ethical
STRATEGY,
MARKETING, SALES
How to Design a Breakthrough
Customer Experience?
How Do We Maximize Impact
of Customer Experience on
Value Creation?
The 6 Core Capabilities of a
Customer-centric
Organization: Your
Ammunition to Winning a
Highly Demanding Customer
In this Digital Age, Are You
Ready for Digital Reinvention?
OPERATIONS &
SUPPLY CHAIN
How Do We Maximize Impact
of Customer Experience on
Value Creation?
Just Too Many Processes?
Gain Back your
Competitiveness through
Global Process Optimization
How to Achieve GREATER
VALUE in M&A? Do the
Fundamentals of Post-merger
Integration
ORGANIZATION,
CHANGE, HR
The Age of Digital
Transformation Is
Unstoppable: Why the Need
for Workforce Digitization
In this Digital Age, Are You
Ready for Digital Reinvention?
Finding Corporate
Philanthropy a Challenge? Let
This Primer Guide You
How to Achieve GREATER
VALUE in M&A? Do the
INFORMATION
TECHNOLOGY
When Data is Not Enough:
The Need to Understand
Purpose-driven Analytics
The Age of Digital
Transformation Is
Unstoppable: Why the Need
for Workforce Digitization
The 6 Core Capabilities of a
Customer-centric
Organization: Your
Ammunition to Winning a
Highly Demanding Customer
CORPORATE
COMMUNICATIONS
When Sustaining Stakeholder
Interest Is Essential: The
Importance of Corporate
Social Responsibility (CSR)
Sources of Value
You're Building a Customer-
centric Organization, So
Where's the Customer
Department?
What's the Best Way to
Manage and Communicate
with Virtual Teams?