Cognitive bias quietly influences corporate financial decisions — Expert

An expert and researcher in financial decision-making, Deborah Atere, has warned that cognitive bias can quietly influence corporate financial decisions and lead organisations into costly mistakes.

Atere said corporate leaders often believe their decisions are based solely on data and analysis, but unconscious biases can affect how they interpret information and assess risks.

“Corporate leaders like to believe their decisions are purely data-driven,” Atere says. “But in reality, judgment is often influenced by hidden biases that shape how information is interpreted.”

She identified overconfidence as one of the common biases affecting corporate financial decisions.

According to her, executives may become too confident in their ability to predict outcomes or manage risks, leading to overly positive forecasts and aggressive investment decisions.

“Overconfidence makes leaders believe they have more control than they actually do,” Atere explains. “This often shows up in overly positive forecasts or aggressive investment strategies, even when the data suggests caution.”

Atere also identified confirmation bias, which occurs when decision-makers focus on information that supports their existing beliefs while ignoring evidence that contradicts them.

She said the bias could be risky in financial decision-making because leaders may overlook warning signs when the information does not support their preferred position.

“Once leaders form an opinion, they tend to look for data that confirms it,” Atere says. “They may ignore warning signs simply because those signs don’t fit the narrative they want to believe.”

Another bias she highlighted is the sunk cost fallacy, which can make organisations continue to invest in projects that are no longer performing well.

According to Atere, companies may find it difficult to abandon projects because they have already invested significant amounts of money, time or resources in them.

“Letting go of a failing investment is not just a financial decision, it’s an emotional one,” Atere notes. “Leaders may continue funding a project simply because they don’t want to admit it was a mistake.”

She said this could result in companies committing more resources to failing projects and increasing their losses.

Atere also cautioned that the use of data and analytics does not automatically eliminate bias from corporate decisions.

“Data is powerful, but it is not neutral,” she says. “If leaders are biased, they can use data to justify almost any decision. They may highlight numbers that support their view and ignore those that don’t.”

She said organisations must therefore pay attention not only to the data available to them but also to how the information is interpreted and used.

According to her, the effect of cognitive bias can become more serious during periods of uncertainty and market volatility.

“Pressure changes how people think,” Atere explains. “In uncertain markets, leaders are more likely to rely on instinct or react emotionally. That’s when biases become even more dangerous.”

She said fear could push companies towards overly defensive decisions, while misplaced optimism could encourage risky investments at the wrong time.

To reduce the impact of cognitive bias, Atere recommended stronger governance and structured decision-making processes within organisations.

She said companies should develop systems that allow their assumptions to be questioned and their decisions tested before implementation.

“Good decision-making is not about removing human judgment,” Atere says. “It’s about putting systems in place that challenge that judgment and test it against reality.”

She identified independent review panels, scenario planning and clear performance benchmarks as some of the measures organisations can adopt.

Atere also stressed the importance of encouraging open discussions within organisations, saying employees should be able to question decisions without fear.

“Diverse perspectives reduce blind spots,” Atere adds. “When different voices are heard, it becomes harder for one biased view to dominate the decision.”

She said as businesses operate in increasingly complex and changing markets, corporate leaders need to understand how their own thinking can influence financial decisions.

According to her, data and technology remain important tools, but they cannot replace sound judgment and self-awareness in corporate decision-making.