5 Cognitive Biases to Understand When Growing Your Practice

Box labelled "brain," with crumpled pieces of paper either laying around it or going into it. Shows cognitive biases

As an independent financial advisor, you’re also an entrepreneur. You run your own business, which requires a dedication to learning and innovation. Books, podcasts, summit events, and other learning tools can help you stay at the cutting edge of the industry. 

Yet, it’s a good idea to be cautious of how you can get in your own way (as we all can on some level). This is thanks to cognitive bias, to which no human is immune. 

Our brain works because of neurons and synaptic connections—billions of them. These connections help us to process the information we intake every second of the day. From the information we read and see to the passive observations of our environment. 

Even with our “super-powered” minds, the human brain cannot process every single data point with the same level of scrutiny. However, our brains still need to process the data so that we stay out of trouble and “get the good” from what we experience. 

That’s where cognitive biases come into play. Cognitive biases are, essentially, shortcuts that our brains create in order to process information more efficiently. So the brain learns to recognize patterns and create biases that aid in understanding. The unfortunate downside is that the biases, called heuristics, can prevent us from absorbing new information. In fact, our biases can even lead us to draw incorrect or harmful conclusions. 

The Most Common Cognitive Biases

In the world of life insurance and entrepreneurship, you can see how biases may hinder you. After all, biases created by our brains can keep us from growing when we most need it. 

While biases may save our brains some energy, being aware of HOW your brain creates biases can help you push back. That way, you don’t keep yourself from learning and applying valuable new information or skills. Recognizing your brain’s biases will keep your critical thinking skills sharp, too.

Negative Bias

One of the reasons it can be difficult to install a Prosperity Mindset in clients is thanks to this negative bias. Humankind is generally hardwired to place more significance on negative information. Some may call this instinct, but focusing on the negative is how our brain tries to protect us from harm. Because if we’re not aware of the danger, we can’t do anything about it. 

The downside of this is that negativity isn’t good for productivity or Prosperity. Too much emphasis on the negative can lead to inaction—especially in finance. After all, saving money is hard when you’re fearful. The same goes for decisions in business. 

For example, if you’re fearful of how your business is performing, you may find it hard to fixate on anything other than the numbers. In some cases, you may be presented with a solution that makes sense, yet you’re afraid to make it because it requires capital—like attending an event or increasing your advertising. The fear of lack may be holding you back from the very solutions that could boost your revenue. 

(Clients tend to have the same views about whole life insurance, incidentally.)

The trick to getting out of the hole is to shed the Scarcity Mindset that a Negative Bias creates, and do something. 

Familiarity Bias

Another “shortcut” the human brain creates is a familiarity bias. Basically, when someone looks like us or acts like us, our brain gives the green light to trust that person more readily. Our brain accepts information from people who feel familiar, even if they’re a stranger. 

The truth is that people are fallible. Even people we trust can make mistakes or say the wrong thing. Trust is an important part of a relationship at any stage, but that trust should not prevent you from asking questions.

Even if you’re listening to someone within the industry, it’s okay to question and do research. To maintain the integrity of the industry, it’s crucial that we hold each other to a standard of excellence. This is especially true with our verbiage and how we talk about life insurance. 

Self-Serving Bias

This bias refers to the human tendency to take credit for success, and avoid responsibility for failure. If you read that and bristled, you may want to take this one seriously, even though it can be a tough pill to swallow. 

For example, if you host an event that is incredibly successful, of course, you’re going to feel like your hard work is a critical factor. However, people are just as likely to blame outside factors if the same event is not well-received. 

Of course, sometimes outside factors ARE to blame. However, that’s not the point in this case. The brain protects you this way so that you can move on from the situation, and not bruise your ego too badly. However, even in cases of “bad luck,” it’s probably worth asking yourself the question, “Is there something I could have done differently to get a different result?” 

It can be hard to reconcile with the idea that maybe you could have done a better job of things. However, this is one of the most important factors of your growth. If you don’t examine these things, it can have a detrimental impact. Maybe a client wasn’t the right fit for you… or maybe you said the wrong thing. Look at your work critically so that you can grow, and don’t let your ego get in the way! 

And if there’s no obvious answer for how you could improve, now you know! 

Anchoring Bias

This is a bias we see in the financial industry often. The human tendency to latch on to the first piece of information you hear. (This is often compounded with the familiarity bias.) For example, how often do you hear someone say “buy term and invest the difference” or “run all your expenses through your cash value”? 

Chances are, you’ve heard people say those things before because that was their first introduction to life insurance. This then serves as their anchoring point through which they filter everything else they hear. 

When you interact with clients, it’s important to understand that they have their own anchors. And they may not let go of them willingly. Yet knowing that those anchors exist can help you validate them and MOVE ON, as Vince D’Addona recommends.

It’s also important to recognize how you might be influenced by your own “anchors.” Are you filtering your understanding of life insurance through your first introduction to the concept? You may feel that you began your journey with the truth, and it may be true, yet you cannot know until you engage critically with the other information that’s out in the world. 

Confirmation Bias

Confirmation bias, of course, is the bias most people are familiar with. It’s the tendency to accept and take in the information that confirms what you already believe. All people do it. It’s not necessarily wrong to do so, however, it can prevent you from growing and learning. Confirmation bias becomes dangerous when you actively ignore information that ignores what you believe, even if it’s proven to be the truth. 

A good example is those who surround themselves with peers who only agree with them. While it may be validating to the Ego, it robs the person of real growth. It’s arguably more valuable to surround yourself with peers who respect you enough to engage with your work or business in a way that pushes it to be better. 

In a newsletter from Peter Diamandis, he shared some wise words that Elon Musk once shared with him. Elon said, “My friends tell me how great all my products are, but my BEST friends are the ones who give me the most brutal criticism.”

Think Outside the Bias

Cognitive biases are a part of the human experience. They function as shortcuts to understanding the world so that we can operate as efficiently as possible. They’re not something to be ashamed of, just something to be aware of. 

When you become aware of your own cognitive biases, you can examine them and use them in order to grow and MASTER your mindset. Growth doesn’t happen by staying comfortable, it happens when you learn to expand beyond your boundaries. Identifying your biases can help you harness your discomfort and turn it into something amazing. 
We aim to tackle and challenge cognitive biases in our Summit for Prosperity Economics Advisors, and we invite you to join us. These events are an intense, deep-dive into the personal work it takes to run a successful business. We’ll challenge your biases, and encourage you to come with your questions and insights.

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