The Information Is There. So Why Are Businesses Still Making the Wrong Decisions?
Experience counts for a lot in business. A leader who has spent years building a company, managing people and navigating difficult markets will naturally develop strong opinions about what works and what doesn’t.ssss
But experience can also create blind spots.
A strategy that delivered results five years ago may no longer work today. Customer preferences change; competitors introduce new offerings and market conditions shift. Yet, business leaders can sometimes rely on what has worked before without examining whether the same approach still makes sense.
This raises an important question: how much of business decision-making is guided by current evidence, and how much is influenced by what decision-makers already believe?
For boards and executive teams, the distinction matters. Decisions about market expansion, investments, pricing, product development and organisational strategy require an understanding of the conditions surrounding the business. When information is interpreted through personal assumptions or established beliefs, even a well-intentioned decision can be based on an incomplete understanding of the problem.
This is where cognitive biases come into the picture.
Cognitive biases are patterns of thinking that influence how people process information and make judgements. They can affect what information receives attention, how evidence is interpreted and which conclusions people reach.
Research by psychologists Amos Tversky and Daniel Kahneman (1974), published in Science under the title Judgment under Uncertainty: Heuristics and Biases, examined how people use mental shortcuts when making judgements under uncertainty. Although these shortcuts can make decision-making easier, they can also lead to systematic errors.
In business, these biases can influence how executives assess research findings, evaluate opportunities and respond to market changes.
The challenge is that a decision-maker may genuinely believe they are making an objective assessment while overlooking information that challenges their positionsss
Five biases are particularly relevant when examining how organisations interpret evidence.
- Confirmation Bias: Looking for Evidence That Supports Existing Beliefs
Confirmation bias occurs when people favour information that supports what they already believe and give less attention to evidence that challenges those beliefs. Consider a business that believes its declining sales are caused by poor brand awareness. It commissions research to understand the problem, but the findings point towards other issues, such as pricing, product availability or customer experience.
If management continues to focus on advertising despite these findings, it risks investing in a solution that does not address the underlying problem. Research should help organisations examine their assumptions, not simply confirm them.
In his 1998 paper, Confirmation Bias: A Ubiquitous Phenomenon in Many Guises, psychologist Raymond S. Nickerson describes confirmation bias as the tendency to seek or interpret evidence in ways that favour existing beliefs, expectations or hypotheses.
In business, this can influence how executives assess research findings, evaluate proposals and respond to recommendations that challenge established thinking.
- Anchoring Bias: Giving Too Much Weight to the First Information Received
Anchoring bias occurs when people rely too heavily on an initial piece of information when making subsequent judgements. In business, this could happen during budget discussions, market assessments or investment decisions.
In their 1974 research, Tversky and Kahneman identified anchoring as a mental shortcut through which people rely heavily on an initial reference point when making numerical judgements. Subsequent adjustments may not move sufficiently far from that starting point.
For example, a company considering entry into a new market may base its initial assessment on an estimate of market size presented during an early meeting. Even when subsequent research provides a different picture, the original figure may continue to influence the discussion. This can affect how opportunities are valued, how risks are assessed and how resources are allocated.
The solution is to examine new information on its own merits rather than allowing an earlier estimate or opinion to determine the outcome.
- Availability Bias: Giving More Weight to What Comes Easily to Mind
Availability bias influences how people assess information based on how easily examples or experiences come to mind. A recent event, a widely reported development or a memorable experience can influence how important or likely a particular issue appears.
For example, after receiving significant media attention over a competitor’s product launch, a business may become preoccupied with matching that competitor’s activities.
However, the competitor’s visibility does not, on its own, establish that its strategy is delivering better results or that customers want the same offering. Decision-makers need to distinguish between what attracts attention and what the available evidence actually establishes.
This is one reason why market research should examine customer behaviour, preferences and market conditions rather than rely solely on prominent industry developments.
- Framing Effect: How Information Is Presented Influences Interpretation
The framing effect occurs when people respond differently to the same information depending on how it is presented.
Consider two ways of communicating a business proposal:
- The proposed strategy has a 70% chance of achieving its target.
- The proposed strategy has a 30% chance of missing its target.
Both statements communicate the same probability, but they may create different impressions. In a boardroom, the way research findings, financial projections and business proposals are presented can influence how decision-makers assess them.
This makes it important to examine the underlying figures, assumptions and methodology rather than base a decision solely on how a report or recommendation is worded.
In their 1981 paper, The Framing of Decisions and the Psychology of Choice, Tversky and Kahneman demonstrated how different presentations of the same decision problem can produce different preferences.
This has implications for boardroom discussions. The way financial projections, research findings, investment proposals and performance reports are presented can influence how decision-makers respond to them.
- Blind-Spot Bias: Recognising Bias in Others but Not Ourselves
It is relatively easy to identify poor judgement in someone else’s decision. Recognising the assumptions influencing our own judgement is more difficult. Blind-spot bias describes the tendency to recognize cognitive biases in other people while underestimating their influence on our own thinking.
In an organisational setting, this can make it difficult for leaders to question their own interpretations of research or consider that their professional experience may be affecting their judgement.
In a 2002 study published in Personality and Social Psychology Bulletin, researchers Emily Pronin, Daniel Lin and Lee Ross examined how individuals tend to recognise cognitive and motivational biases more readily in others than in themselves.
Their findings highlight an important challenge for organisational decision-making: people may genuinely believe they are assessing information objectively while overlooking the influence of their own thinking.
Recognising this limitation is an important part of evidence-based decision-making. It encourages decision-makers to examine their own positions with the same level of scrutiny they apply to other people’s recommendations.
What Happens When Businesses Misinterpret Research Findings?
Understanding cognitive biases is useful, but their implications become clearer when considered against actual business decisions.
The following are situations where poor interpretation of business information can affect organisational choices.
- Misallocated marketing budgets
- Poor market expansion decisions
- Product development based on incomplete feedback
- Ineffective organisational decisions
Now how do businesses improve their decision-making process
- Distinguish Between Evidence and Assumptions
Before approving a major business decision, identify what is known, what is assumed and what still needs to be investigated. For example, a decline in revenue may be established by financial records. However, attributing that decline to poor marketing requires further investigation.
This distinction prevents assumptions from being treated as established findings.
- Examine How Research Was Conducted
Research findings should never be considered without understanding the methodology behind them.
Decision-makers should examine:
- The objective of the research.
- The population or group studied.
- The sample size and how participants were selected.
- The questions asked and how responses were collected.
- The limitations of the findings.
The American Association for Public Opinion Research (AAPOR), in its Best Practices for Survey Research, emphasises the importance of careful survey planning, sample design, questionnaire development, data collection and analysis.
A customer survey, for example, may reveal how existing customers feel about a product. It may not provide sufficient information about why potential customers choose competing brands. Understanding the research methodology helps businesses avoid drawing conclusions that the findings cannot support.
- Consider Alternative Explanations
When a business problem is identified, management should avoid settling on the first explanation that appears convincing. If customer retention is declining, for instance, possible areas of investigation may include product quality, pricing, customer service, competition and changing customer expectations.
Examining alternative explanations gives decision-makers a broader understanding of the issue before choosing a response.
- Encourage Independent Perspectives
People involved in making a decision should have room to question the evidence and challenge the proposed interpretation. This includes listening to research teams, operational staff, external advisers and other people who may have relevant information.
A different perspective can reveal gaps in an argument that may otherwise go unnoticed.
- Review Decisions Against Their Intended Outcomes
The decision-making process should not end once a strategy has been approved and implemented. Organisations should identify what they expect a decision to achieve and establish how they will assess its performance.
If a business invests in a new market, it should monitor the indicators relevant to that decision, such as customer acquisition, sales performance and market response. Where the expected results do not materialise, management should revisit the original assumptions and examine whether the strategy needs to change.
Business research provides organisations with a structured way to investigate questions about their markets, customers, competitors and operating environment.
It can help management understand customer attitudes, assess brand performance, examine distribution channels, evaluate products and identify areas that require further attention.
However, collecting information is only one part of the process. The findings must be analysed and interpreted in relation to the business question they are intended to answer. Similarly, an organisation reviewing its brand position may need to examine how customers perceive the brand, what influences their choices and how its offering compares with alternatives.
These questions require research that is relevant to the decision at hand.
At Redwood Consulting, our Insights and Intelligence unit undertakes research designed to help organisations investigate business challenges and understand the markets in which they operate. The findings from such research can give businesses a clearer basis for assessing opportunities, examining challenges and considering their strategic options.
Experience will always have a place in business leadership. It helps decision-makers understand context, recognise patterns and draw on lessons from previous situations. But experience should not prevent organisations from examining new information or questioning established ways of thinking.
A market that once offered considerable opportunity may have changed. A customer group that was once loyal may have different expectations. A strategy that previously delivered results may need to be reconsidered.
Is your organisation making decisions based on what it knows, what it assumes or what the evidence actually reveals?
Redwood Consulting can help you investigate business challenges through research and insight-led advisory services, speak with our team about how our research services can support your next decision.
Contact us at consult@redwood-consulting.com and let’s start with the right questions.