5 Cognitive Biases That Are Holding You Back

I like to think of myself as a constant learner. I don’t believe you can make it very far as a leader without humility, and throughout my three-decade career, I have sought out information on how to improve my leadership skills through practically every medium. Books have obviously been a massive component of that, as well as seminars, and more recently, podcasts have become a valuable resource.

These long-form types of content allow leaders to gain large amounts of knowledge. But I’ll admit that it can be difficult to take in all of the information and find the time to do so. We live in an increasingly fast-paced world, and often our efforts are so focused on being an entrepreneur running a company that we don’t feel we have the time to commit to external growth outside of it.

This is a mistake. As leaders, we must constantly seek ways to improve our craft — after all, leadership is a skill that must be intentionally honed. Learning by doing is a valid way to become a good leader, but if you want to be truly great, you must take it upon yourself to consistently make conscious improvements.

That being said, it is important to recognize that short-form articles – like the one I am writing right now – can be just as valuable. They present information in a concise and easily digestible way that can be further researched at a later date if interest is sparked. And with that, I introduce you to cognitive biases.

Related: How Cognitive Biases Can Impact Your Trading and Investment Decisions

What are cognitive biases?

A concept first introduced by researchers in the 1970s, cognitive biases are defined as systematic errors in thinking that occur when people are processing and interpreting information in the world around them and ultimately affect their decisions and judgments. They are our brains’ attempts at simplifying information processing, creating rules that help us in making the thousands of decisions we do each day.

However, although powerful, the human brain is not flawless. Our attention is limited, and our memories are imperfect, and because of this, subtle biases can creep in and influence the way we see and interact with the world around us.

Great leaders are those that can consistently take in and evaluate all of the information available to them to make objective, logical decisions. Mistakes are inevitable, but pervasive ones are more often than not the result of biases throwing you off, leading to poor decisions and bad judgments.

Below I have outlined five cognitive biases I believe most commonly prevent entrepreneurs and their organizations from reaching their full potential.

Related: Cognitive Biases About Leadership and How to Survive Them

1. Confirmation bias

It comes with the territory of entrepreneurship that you will inevitably encounter naysayers who tell you your idea will never work. Whether it be friends, family, co-workers or even people you hoped to do business with, it is the hallmark of a successful entrepreneur to remain driven even when others cannot see your vision.

However, this can also lead to one of the most common cognitive biases. Confirmation bias is the tendency to seek out and interpret information to confirm existing beliefs or assumptions and disregard contradictory evidence. This lack of objectivity can cause entrepreneurs to be plagued with problems, preventing them from considering alternative perspectives or adapting their strategies based on new information.

2. Overconfidence bias

Entrepreneurs who exhibit overconfidence bias tend to have an inflated sense of their own abilities, knowledge, and the likelihood of success. It is important to emphasize that overconfidence bias is not just something that happens to people with massive egos – everybody at one point or another has incorrectly assessed their competencies.

For example, when asked to rank their driving skill, 93% of Americans said they were better than average. However, 90% of accidents are caused by human error. The perception does not hold up to the facts and statistics.

When it comes to entrepreneurs, this bias can lead to excessive risk-taking, failure to assess market conditions adequately, and a tendency to overlook potential obstacles or challenges. In short, humility should aspire to more than hubris.

Related: Are You Dangerously Overconfident?

3. Anchoring bias

As an entrepreneur, you may already be familiar with the concept of price anchoring. Price anchoring involves introducing a prospective customer to a higher price at the beginning of a potential sale, whether it’s an undiscounted price or a different product or service with a higher price tag.

Those who use price anchoring are taking advantage of the anchoring bias. Our first exposure to information significantly influences us, causing us to incorrectly evaluate all subsequent information based on that initial knowledge, even if it doesn’t…