Developing a strategy is one of the most complex stages in company management. It requires logic, the ability to see the big picture, work with facts, assess risks, and embrace change. However, at this stage, certain thinking patterns often fail us. We believe we act rationally, but in reality, strategic decisions are heavily influenced by cognitive biases – systematic thinking errors that distort how we perceive and analyze information.
Let’s explore how the thinking of business owners and managers can replace strategy with the illusion of growth, and what can be done about it in practice.
Let’s explore how the thinking of business owners and managers can replace strategy with the illusion of growth, and what can be done about it in practice.
We offer business analytics and financial consulting services. We help build financial strategies based on numbers, logic, and transparent scenarios.
System 1 and System 2: automatic vs. conscious thinking
Human thinking is conventionally divided into two systems:
The problem is that when working on strategy, System 1 often dominates, because it's familiar, more comfortable, and faster. But strategy requires System 2.
- System 1 is fast and automatic. It reacts instantly, based on past experience, intuition, and emotions. It helps us drive a car without consciously thinking through each movement.
- System 2 is slow and analytical. It kicks in when solving complex problems, building strategy, analyzing, or calculating scenarios.
The problem is that when working on strategy, System 1 often dominates, because it's familiar, more comfortable, and faster. But strategy requires System 2.
5 cognitive biases that undermine strategic thinking
1. Framing effect
We perceive the same information differently depending on how it’s framed. Example: if you're told that a strategy has a “70% chance of success,” you’ll feel optimistic. But if it's described as “30% risk of failure,” you might hesitate — even though it’s the same data. As a result, companies delay decisions because of wording, not actual evaluation.
What to do: present strategic options using numbers and consistent formats. Avoid emotionally charged language.
2. Confirmation bias
We seek confirmation of decisions we've already made. If a manager believes “the market will recover in the fall,” they may ignore signals of stagnation. This leads businesses to waste time and resources waiting instead of adapting.
What to do: implement regular analysis of alternative scenarios. Appoint a “devil’s advocate” on the team to actively challenge core assumptions.
3. Sunk cost fallacy
This occurs when we continue investing in a project just because we’ve already poured resources into it, even if it’s clearly ineffective. It often sounds like: “It would be a shame to shut it down, we’ve put so much into it.” As a result, businesses may sustain unprofitable directions for years.
What to do: evaluate a project's prospects independently from past investments. Ask: “If we were deciding today, would we launch this project from scratch?”
4. Halo effect
When one strong feature of a company shapes the perception of its overall potential, this can lead to flawed strategic decisions. For example, a strong product in one category may create the illusion that all new products will succeed, but without proper research, this can lead to failure.
What to do: don’t rely on a company’s overall good image. Test each business hypothesis using specific data, market analysis, audience insight, and resource evaluation.
5. Availability heuristic
We tend to overestimate risks or opportunities that are easy to recall. For instance, if past growth came from advertising, that solution comes to mind first, even if the market has changed.
What to do: analyze real data. Regularly review the effectiveness of all channels and decisions. Past success doesn’t guarantee current relevance.
We perceive the same information differently depending on how it’s framed. Example: if you're told that a strategy has a “70% chance of success,” you’ll feel optimistic. But if it's described as “30% risk of failure,” you might hesitate — even though it’s the same data. As a result, companies delay decisions because of wording, not actual evaluation.
What to do: present strategic options using numbers and consistent formats. Avoid emotionally charged language.
2. Confirmation bias
We seek confirmation of decisions we've already made. If a manager believes “the market will recover in the fall,” they may ignore signals of stagnation. This leads businesses to waste time and resources waiting instead of adapting.
What to do: implement regular analysis of alternative scenarios. Appoint a “devil’s advocate” on the team to actively challenge core assumptions.
3. Sunk cost fallacy
This occurs when we continue investing in a project just because we’ve already poured resources into it, even if it’s clearly ineffective. It often sounds like: “It would be a shame to shut it down, we’ve put so much into it.” As a result, businesses may sustain unprofitable directions for years.
What to do: evaluate a project's prospects independently from past investments. Ask: “If we were deciding today, would we launch this project from scratch?”
4. Halo effect
When one strong feature of a company shapes the perception of its overall potential, this can lead to flawed strategic decisions. For example, a strong product in one category may create the illusion that all new products will succeed, but without proper research, this can lead to failure.
What to do: don’t rely on a company’s overall good image. Test each business hypothesis using specific data, market analysis, audience insight, and resource evaluation.
5. Availability heuristic
We tend to overestimate risks or opportunities that are easy to recall. For instance, if past growth came from advertising, that solution comes to mind first, even if the market has changed.
What to do: analyze real data. Regularly review the effectiveness of all channels and decisions. Past success doesn’t guarantee current relevance.
How to move from automatic reactions to conscious strategy
To ensure your strategy is sound and not driven by cognitive traps, it’s important to:
- Foster a culture of critical thinking in the company
- Encourage uncomfortable questions and consider alternative scenarios
- Regularly review core hypotheses and strategic decisions
- Rely on data, not gut feelings
- Use external analytics and industry benchmarks to validate your conclusions
Strategy needs objectivity, not intuition
Intuition can be a valuable source of hypotheses, but in strategic decisions, it must go hand in hand with facts. Cognitive biases are not a weakness – they’re a natural feature of our thinking. But when it comes to growth strategy, it’s vital to go beyond automatic reactions and approach decision-making with awareness and evidence. Critical thinking, scenario planning, and an outside perspective are powerful tools against management mistakes.
If you want to build a strategy based not on assumptions, but on clear financial analysis – we’ll help you identify key figures, assess risks, and make well-founded strategic decisions.