By
updated 5/10/2013 12:19:28 PM ET 2013-05-10T16:19:28

Q: How can you cut through brain clutter to make the best decisions for your business?

A: Now there's a question that has bedeviled pretty much every entrepreneur who ever dared to dream.

Academicians Chip and Dan Heath argue that the key to making clear-headed decisions is our ability to see beyond our entrenched biases. In their book Decisive: How to Make Better Choices in Life and Work, the brothers explore the phenomena of what they describe as "confirmation bias" and "overconfidence bias."

We asked Chip Heath to explain. Overconfidence bias, he says, causes us to overestimate our ability to predict the future and thus make decisions based on our (often incorrect) prognostications. Confirmation bias means we tend to give credence only to those opinions that reaffirm our own.

"We collect information by our hypotheses we start out with," says Heath, a professor at the Stanford Graduate School of Business. (Dan is a senior fellow at Duke University's Center for the Advancement of Social Entrepreneurship.) "So we end up confirming our initial suspicions."

As an example, Heath proffers a painfully familiar scenario: the marital spat. "If you have an argument with your spouse, information that supports your position comes to mind more readily than information that doesn't support your position," he says. "The same thing happens in business."

Overcoming both biases, he argues, requires us to consider a wider variety of solutions to our problems. In the case of confirmation bias, Heath recommends that entrepreneurs envision opposing solutions to any given dilemma, then try to figure out what needs to be done to make either solution work.

"Let's think of what it would take to make each option the best possible option," Heath says. "Then you can test the solutions. You turn it into a data-collection exercise, as opposed to an entrenched debate. It takes the psychology of confirmation bias and turns it on its head, and it allows for agreement among a group of people who normally would have been shooting down the options they didn't favor."

To combat overconfidence bias, Heath says, entrepreneurs need to take into account the inevitable surprises--good and bad--that will disrupt the course they've set for their business. Heath recommends conducting what he calls the "pre-parade" and the "pre-mortem"--in other words, envision the best and worst possible outcomes, then figure out how to respond in each case. "When you take that perspective," he says, "people come up with more systematic suggestions. There's something about having that certain scenario in your mind."

The underlying source of both biases is what Heath calls the "mental spotlight effect"--our tendency to focus on an overly narrow range of ideas--which he describes as a "biological constraint." Broadening the spotlight enables entrepreneurs to make more informed decisions. "You'll have a more robust plan," Heath contends, "if you take into consideration the concerns other people are having and have contingency plans for dealing with those."

Copyright © 2013 Entrepreneur.com, Inc.

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.67%
$30K home equity loan FICO 5.00%
$75K home equity loan FICO 4.36%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 11.09%
11.09%
Cash Back Cards 16.42%
16.42%
Rewards Cards 16.04%
16.04%
Source: Bankrate.com