Standard economic models assume people are perfectly rational. 

Psychology has shown that assumption to be wrong. 

Behavioral economics, a fusion of economics and psychology examines how behavioral biases and cognitive limitations affect our decisions, and what we can do to mitigate their effects.

While there are hundreds of documented  biases, for illustration we focus here on confirmation bias

Confirmation bias is our tendency to be open to information that confirms our existing beliefs, while being closed to information that does not support those beliefs. 

Alternatively, we can think of confirmation bias as being receptive to information that supports a goal we want, and cool to information that suggests the goal is not achievable or desirable.

An example of confirmation bias in leadership is when having made a decision, you notice only data that supports your decision and fail to notice anything that shows it in bad light. It might also mean you’re not open to bad news about progress on a project or bad news about sales.

How can we mitigate confirmation bias? 

Awareness is  the first step. 

Then, in your inner circle, strive to have people who will tell you their honest opinion - whether you’re being over optimistic or too pessimistic.

By keeping confirmation bias in check, you can make better decisions and create greater leadership impact.

This is a shortened version of an article jointly authored by John Howe and me. For the entire article, please click here: UYL 012

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