Managers’ cognitive biases can negatively affect their decision-making process leading to suboptimal results. They normally include confirmation, overconfidence, loss aversion, bandwagon, information availability, and anchoring biases, as well as prejudices towards others based on religion, ethnicity, gender, age, and group identity, to name a few. Although a person cannot avoid mental mistakes while delivering a decision completely, managers are still encouraged to minimize the number of biases. Nevertheless, there may be certain situations or conditions when actions based on prejudice may have positive consequences.
Firstly, considering that biased decision is often heuristic in nature, meaning that the specific action plan and related information are easily accessible in a person’s mind, it is delivered faster. This can be advantageous when leaders need to react quickly to the situation, under uncertainty, or when even suboptimal action is better than no action. For instance, when most investors sell some company’s shares, predicting that the prices will go down soon, the manager can decide to trust the public opinion and avoid losing the money after the prices actually drop. However, if the leader wants to check whether other people’s expectations are reasonable, he or she would start selling the shares later, which would result in greater losses than in the former case.
Moreover, prejudices towards the members of certain groups may sometimes be correct. Indeed, wrongful generalizations about others, most of the time, do not appear without reason and are based on observations of a particular non-group representative number of cases. Therefore, there is a chance that a manager can meet someone – for example, a business partner or potential employee – who actually possesses the prejudiced qualities. Then, decisions on whether to cooperate with or hire this person would be more accurate when based on biased presumptions.
Therefore, it is seen that even mental mistakes can sometimes lead to better decisions. Nevertheless, the benefits of actions based on biases are usually sporadic and efficient in the short-term rather than in the long-term. As such, prejudice can prevent a company from building relations with a potentially competent employee or trustworthy and reliable business partner. In a similar vein, spending some additional time on the evaluation of the advantages and disadvantages of a particular decision usually leads to better results. Additionally, delivering one successful decision based on bias can make managers wrongfully believe that such a strategy will work in the future as well.