4 Cognitive Biases of Leaders: How to Minimize Their Impact When Making Decisions

published on 26 May 2023

Biases are inherent distortions in the way we process information, influencing how we interpret reality and make decisions. The question arises: can we avoid them?

Leaders serve as role models, and if they are unaware of their own cognitive biases, they risk perpetuating and reinforcing these biases within their teams. This can restrict the diversity of thought, impede problem-solving abilities, and perpetuate harmful stereotypes.

Cognitive biases often operate unconsciously and stem from the brain's natural inclination to process information quickly and efficiently. While these biases may have some utility in specific contexts, they can also lead to irrational or erroneous decision-making. Such outcomes can result in inefficient resource allocation, unfairness, conflicts, and other challenges that undermine effective leadership within organizations.

Maintaining an open mind and being receptive to new ideas and perspectives is crucial. This acknowledges that biases exist within all of us and underscores the importance of questioning our own beliefs and prejudices.

Illusory Correlation Bias

People influenced by this bias tend to seek or find patterns or causality where none actually exists, which can lead to erroneous conclusions or decisions based on insufficient or misleading information.

Suppose the leader of an accounting firm notices that the company's revenue has consistently increased during the same period in which the firm hired new employees. If the leader is influenced by the illusory correlation bias, they might automatically attribute the revenue growth to the hiring of new employees, believing that there is a direct cause-and-effect relationship between the two variables. However, it is possible that the revenue growth is driven by other factors, such as changes in market conditions, an increase in client referrals, or improved client satisfaction. By solely attributing the revenue growth to the hiring of new employees, the leader may make decisions based on this mistaken perception, such as increasing recruitment efforts or expanding the workforce, without considering other contributing factors. This can result in inefficient resource allocation, unnecessary costs, and a missed opportunity to address the actual drivers of revenue growth.

Framing Bias

The framing effect refers to the human tendency to make decisions based on how information is presented rather than its objective content. This perception and evaluation of a problem or situation can lead to different decisions, even if the underlying facts are the same.

One of the most common examples of this bias is framing in terms of positive/negative aspects of a situation. Imagine an accounting firm leader discussing a new project with their team. The leader can frame the project in two different ways:

Framing Bias in Leadership
Framing Bias in Leadership

The framing of the project can influence how employees perceive and approach their work. Recognizing framing bias help accounting firm leaders choose their words carefully and consider the potential impact of different frames on their employees' motivation and performance. They can aim to strike a balance by acknowledging challenges while highlighting the growth opportunities and support available to ensure success.

Emotional Contagion Bias

Also known as emotional bias or emotional contagion bias, it refers to the human tendency to be influenced by the emotions and opinions of others rather than relying on a rational assessment of the situation.

For example, if a leader is facing a challenging situation, such as an audit dispute or a significant client loss, his emotional state and how they express their emotions can have a contagious effect on the team:

  • Negative Emotional Contagion: If the leader reacts with visible stress, frustration, and pessimism, team members are likely to catch those negative emotions. This emotional contagion can spread throughout the team, leading to decreased morale, motivation, and performance. It may hinder their ability to effectively navigate the situation and find solutions.
  • Positive Emotional Contagion: On the other hand, if the leader remains composed, displays confidence, and conveys a positive attitude despite the challenges, team members are more likely to catch those positive emotions. This emotional contagion can foster resilience, teamwork, and a proactive mindset among the employees, enabling them to face difficulties with optimism and determination.
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Anchoring Bias

This bias is observed in people who rely on limited initial information (the "anchor") to make decisions or judgments. This initial information acts as a reference point for subsequent estimations or evaluations, influencing how we perceive and process additional information.

Imagine an accounting firm leader who is in the process of negotiating fees with a potential client. During the initial meeting, the client mentions that they have received proposals from other firms ranging from $50,000 to $100,000 for similar services. The leader becomes "anchored" to the lower end of the range, $50,000, as the initial reference point.

Due to the anchoring bias, the leader may subconsciously fixate on the lower amount and use it as a reference for their own fee proposal. As a result, they might propose a fee that is closer to the lower end of the range, potentially undervaluing the services provided by their firm. This decision may not adequately consider factors such as the complexity of the project, the expertise and experience of the team, or the value they bring to the client.

As leaders can be role models for others, if they are not aware of their own cognitive biases, they may transmit and reinforce these biases in their team.

Can biases be avoided?

Since cognitive biases are automatic and often unconscious patterns of thought, it is difficult to eliminate them completely. However, by following some of these tips, we can become aware of them and minimize their impact by making more informed and balanced decisions.

Impartial Information: seeking impartial and objective information before making important decisions avoids relying solely on biased or limited sources, allowing us to consider multiple viewpoints and reliable sources of information.

Conscious Reflection: taking the time for conscious reflection before making important decisions allows us to examine our own thoughts and emotions for possible biases. It is good to ask ourselves if we are letting prejudices influence our judgment in any decision.

Open Mind: maintaining an open mind and being receptive to new ideas and perspectives allows us to recognize that we all have biases and that it is important to be willing to question our own beliefs and prejudices.

Acquire Others' Perspectives: trying to put ourselves in others' shoes and understand their point of view helps us recognize that we all have different experiences and perspectives, which can influence how we interpret information.

Final Thoughts

While biases cannot be completely avoided, leaders who actively work to minimize their impact contribute to a more inclusive, rational, and effective decision-making process. By embracing diverse perspectives, seeking impartial information, reflecting consciously, and being mindful of emotional contagion and anchoring biases, accounting firm leaders can lead their teams toward better outcomes and a more successful organization.

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Kevin Mitchell, CPA

Senior Manager and CPA with over 20 years of experience in accounting and financial services, specializing in risk management and regulatory compliance. Skilled in managing audits and leading teams to deliver exceptional services. Proud father of two.

🔗 Kevin Mitchell | LinkedIn

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