• Maniza Dewan

How Feelings Affect Decision Making in Businesses

At Falak, we pride ourselves at having a fairly robust decision making process. It is a documented framework with a point based system that helps us determine if this in fact is a project we need to spend time on, a client we want to work with or an investment we want to make.

Three main things go in to our decision making – extensive research and fact gathering followed by a thorough analysis, insights and judgments of team members and finally a framework that puts the two together to lead to a decision. Our experience has taught us, that the process of marrying the decision to analysis is the most important part of decision making. Analysis conducted by a good and capable manager will not yield a good decision, unless the process avoids built in biases.

If you were to spend time looking at any decision that went wrong by the smartest minds, be it an acquisition gone wrong, strategic plan failed, or projects being over budget, you will find a big role of these cognitive biases – the tendency of the mind to not be rational.

However, biases are a very important facet of decision making for individuals. How I feel about something, or what my experience with it in the past has been, or the type of personality I am, all play a vital role in me deciding on something. But the fundamental cause of bias in decision making has to be that it is part of our nature as human beings. We are hardwired and resistant to change and ideas.

Within the Falak team itself, we can easily identify team members that are likely to have a champions bias (being influenced by the experience of a person presenting a finding), an excessive optimism bias, an aversion to loss bias etc. A good corporate strategist needs to take into account these cognitive biases – the tendency to deviate from rational thinking- while designing strategy.

Having recognised that we are flawed and influenced, the aim is not to eliminate this bias in corporate decision making. However, to allow biases to rule decision making, leads to loss of corporate identity and individual managers or owners identity being forced on the corporate. The idea is to not only to limit our own biases (or our teams' biases), but also define a process that recognises and eliminates this bias.

While studying corporate biases, theorists have identified dozens of cognitive biases. However, they all have one thing in common- they are related to the rule of thumb or mind-sets. Some of these are –

  • Social biases that arise out of our need for congruence over confrontation (group thinking bias that strives for consensus at the cost of realistic decision making)

  • Pattern-recognition bias which is our minds ability to see patterns even when there are none

  • Generalizing based on recent examples

  • Confirmation bias – using favored belief system to impartially view evidence) etc.

Studying and recognizing these biases is the first step in ensuring an unbiased decision making process, but it is certainly not the only step. The ability to counter these biases effectively and without damaging personal relationships is key to ensuring a robust decision making system for a company.

A high level approach to ensuring your strategic decision is taking into account the principles of behavioural psychology is –

  1. Identify which decisions matter the most and need to be free of biases,

  2. Identify what biases are most likely to effect the decision and

  3. Create a process (complete with framework and tools) to counter the most relevant bias.

The ability to incorporate behavioural psychology in corporate strategy ensures not only better decisions but also less painful ones. Improved executive judgement and more inclusive management are the most desired results of behavioural strategy frameworks.



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