Decision-Making Bias: What Managers Can Learn From Traders

10 July 2026

Decision-Making Bias: What Managers Can Learn From Traders

Pressure Changes How People Think

Managers make decisions with incomplete information all the time. A project is behind schedule. A team member is underperforming. A client is unhappy. An opportunity looks promising, but the numbers aren’t clear yet. Managers are expected to stay calm, weigh the evidence, and choose a sensible way forward.

Easy enough, until the human brain gets involved.

Pressure changes how people think. It makes recent events feel more important than they are. It makes confidence feel like evidence. It makes us search for information that supports what we already believe. That doesn’t mean managers are careless. It means they’re human.

A similar pattern appears in financial markets, where the combination of pressure and fast feedback can distort judgement through overconfidence, loss aversion, and other common trading biases. Research across management and behavioural economics consistently confirms the overlap. A 2025 systematic review in the Journal of Business Administration identified 43 distinct cognitive biases relevant to managers’ decision-making — and found that most managers remain largely unaware of which ones most affect their own judgement.

The lesson is not that managers should think like traders. It’s simpler: when pressure rises, decision-making bias becomes easier to miss and more expensive to ignore.

Why Bias Matters in Management

Bias is not stupidity. It’s often the brain trying to work quickly.

Managers need experience, intuition, and judgement. But quick thinking has limits. It can lead to jumping to conclusions, defending weak decisions, or overlooking inconvenient evidence. And the consequences compound quietly. A promising employee is overlooked. A weak process stays in place because changing it would mean admitting it no longer works. A struggling project gets more resources because nobody wants to be the person who calls time on it.

The scale of the problem

Research from McKinsey found that faulty analytical thinking stemming from cognitive bias costs organisations significant strategic value annually — with major investment decisions affected in over 60% of organisations studied. A 2025 study of 152 managers found that collective decision-making processes significantly reduced bias-driven errors, but only in organisations where leaders actively built deliberate review into important decisions rather than relying on speed and individual judgement alone.

Good management is not about eliminating bias completely. That would be admirable and impossible. It’s about noticing where bias appears and building better habits around decisions that matter. The Knowledge Hub on decision making and problem solving covers frameworks for more structured, evidence-based decision-making in depth.

Overconfidence: When Experience Becomes a Blind Spot

Experience helps managers spot patterns, avoid obvious mistakes, and act with confidence. The problem begins when confidence becomes certainty.

A manager may believe they can “just tell” who will be a good hire. A project lead may assume a deadline is realistic because similar work has been done before. A senior leader may dismiss concerns because they have “seen this situation many times.” Sometimes they’re right. Sometimes they’re just very fluent in being wrong.

What overconfidence actually does

Overconfidence causes managers to underestimate risks, ignore warning signs, speak too soon, listen too little, and confuse past success with current evidence. A 2024 cross-sectional study of 639 entrepreneurs and 512 managers found that overconfidence significantly influenced decision-making quality — with consequences for both the accuracy of decisions and the willingness to revise them when early results suggested a problem.

A useful question is: “What would I look for if I were less sure?” That small pause separates experience from assumption. It doesn’t undermine confidence — it sharpens it.

Confirmation Bias: Seeing What Supports the First Thought

Once people form an opinion, they tend to notice information that supports it and discount information that doesn’t. In management, this shows up quietly. A manager decides an employee isn’t committed, then notices every late reply while forgetting useful contributions. A team believes a project is on track, then focuses on positive updates while downplaying delays.

The danger is that confirmation bias feels like evidence gathering. In reality, the manager may be building a case for a conclusion already reached.

Practical questions that help

To reduce confirmation bias, ask before deciding:

• What evidence goes against my current view?
• Who sees this situation differently — and what are they seeing that I’m not?
• Am I selecting only comfortable facts?
• What would genuinely change my mind?

These questions are simple but not always comfortable. That’s usually a sign they’re doing something useful.

Loss Aversion: Protecting Bad Decisions for Too Long

People dislike losses more than they enjoy equivalent gains. Decades of research in behavioural economics — from Kahneman and Tversky’s foundational work to more recent management studies — confirm that this asymmetry distorts decision-making in consistent and costly ways.

In management, loss aversion makes it hard to stop investing in a poor decision. A manager may keep supporting a failing project because so much time has already gone into it. A business may keep using an outdated process because changing it would mean admitting it no longer works. Nobody enjoys saying “we made the wrong call” — but loss aversion can turn a manageable mistake into a much larger one. The longer a poor decision is protected, the more expensive it becomes.

The test worth applying

A useful question is: “If we were making this decision today from scratch, would we choose the same path?” If the answer is no, the follow-up is: “What needs to change, and what’s stopping us?” Sunk costs — the time and money already spent — are not a reason to continue. They’re history. The only relevant question is what the best decision looks like from this point forward.

Recency Bias: Overreacting to the Latest Event

Recent events feel more important than they often are. One difficult client call can make a team seem unprepared. One strong week can make a strategy look brilliant. One missed deadline can make an employee look unreliable, even when their longer-term record is strong.

In financial markets, recency bias drives traders to chase recent winners and abandon positions that have temporarily underperformed — often at exactly the wrong moment. In management, it drives premature conclusions about people and projects based on the most recent data point rather than the full pattern.

Placing events in context

The solution is not to ignore recent events. It’s to place them in context. Before making a judgement based on something recent, ask: Is this a pattern or a single event? What does the longer-term evidence show? Am I reacting to urgency or importance? Would I see this the same way in two weeks? People shouldn’t be judged only by their latest mistake, or promoted only because of their latest success.

Better Decisions Start with Better Questions

Managers work where certainty is rare. People are complex. Teams are busy. Information is incomplete. Pressure is part of the job. The goal is not to become emotionless — emotion signals urgency, care, frustration, and concern. The goal is to stop emotion taking over while confidence pretends to be data.

This is where the parallel with trading is most instructive. Traders learn quickly that fear, frustration, and overconfidence can turn a reasonable plan into a reactive decision. Controlling emotions before acting is a discipline that transfers directly to management contexts — particularly when decisions carry significant consequences and the temptation to act quickly is strongest.

Decision-making bias thrives when decisions are rushed, private, and unquestioned. It weakens when managers slow down, invite challenge, and look for evidence that doesn’t simply flatter their first opinion. Better decisions come from better habits — and sometimes from asking one more question before pressing ahead. Good leadership and managing performance practice treats that discipline as a core management competency, not an optional extra.

Further Reading

• McKinsey: Biases in Decision-Making — A Guide for CFOs — A practical primer on the most common cognitive biases affecting organisational decisions, with techniques drawn from Daniel Kahneman’s research on how companies can build better decision processes. Read the article
• UNC Executive Development: Decision-Making Biases — Key Cognitive Pitfalls to Watch For — A clear, management-focused guide to the cognitive biases most likely to affect leadership judgement, with practical techniques for reducing their impact in everyday decisions. Read the guide
• Mind Tools: Cognitive Bias — An accessible overview of ten cognitive biases common in business decision-making, with examples and practical strategies for building more objective, rational habits. Read the guide

Disclaimer

The content on this site is provided for general information and educational purposes only. It reflects the author’s views and experience and is not intended as professional financial, investment, or management consultancy advice. References to trading and financial markets are used for illustrative purposes only. Readers should use their own judgement and seek appropriate professional guidance before making significant decisions based on anything published here. The Happy Manager and Apex Leadership Ltd accept no liability for actions taken in reliance on the content of this article.

References

1. Mirbagheri, S.M. and Rafiei Atani, A.O. (2025). Managers’ Cognitive Biases in Decision Making: Revisiting an Effective Method. SAGE Open. https://journals.sagepub.com/doi/10.1177/21582440251355330
2. Fasolo, B., Heard, C. and Scopelliti, I. (2025). Mitigating Cognitive Bias to Improve Organizational Decisions: An Integrative Review, Framework, and Research Agenda. Journal of Management. https://journals.sagepub.com/doi/10.1177/01492063241287188
3. Tommasi et al. (2024). Overconfidence and Sunk Cost Bias in Entrepreneurs and Managers. Referenced in: Sciedu Press (2025). https://www.sciedupress.com/journal/index.php/ijba/article/viewFile/28295/17294
4. McKinsey Global Institute (2024). Biases in decision-making: A guide for CFOs. https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/biases-in-decision-making-a-guide-for-cfos
5. Kahneman, D. and Tversky, A. (1979). Prospect Theory: An Analysis of Decision Under Risk. Econometrica, 47(2), pp.263–291. Referenced in: Trading.com (2025). https://www.trading.com/blog/cfd/stocks/common-trading-biases-to-watch-for

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