Risk management failures often stem from flawed thinking. History is full of examples where cognitive biases led to catastrophic misjudgements. For example, during the 2008 financial crisis, confirmation bias led many investors and financial institutions to downplay warning signs of an unsustainable housing bubble, focusing only on data that supported continued growth while dismissing contradictory evidence. Similarly, overconfidence bias contributed to excessive risk-taking at firms like Lehman Brothers, where executives underestimated exposure to market downturns.

Cognitive biases are systematic errors in judgment that distort our perception of risk. Availability bias can cause professionals to overemphasize recent events, leading to reactions that overcompensate, such as excessive regulation after a crisis or complacency during long periods of stability or growth. Anchoring bias — placing undue weight on initial estimates — contributed to misjudged risk assessments early in the COVID-19 pandemic. Additionally, normalcy bias led many governments and organisations to struggle with comprehending the scale of the crisis, as modern society had not faced a pandemic of this magnitude.

For risk professionals, maintaining objectivity and seeing the full picture is essential to making sound decisions. Recognising and mitigating these biases can mean the difference between identifying emerging threats and walking blindly into preventable crises.

Mitigating Cognitive Biases

Cognitive biases can be mitigated using various techniques:

  • Prioritise data-driven decisions over gut feelings.
  • Implement structured risk assessments to minimise subjective judgments and ensure comprehensive analysis.
  • Cultivate diverse teams - different perspectives can challenge biased thinking.
  • Actively seek out dissenting opinions.

There are various critical thinking techniques, that can be employed to mitigate cognitive bias:

  • Devil’s Advocate Approach – Arguing against a position to test its strength.
  • Red Teaming – Using an independent group to challenge assumptions.
  • Steel Man Technique – Strengthening an opposing argument before countering it.
  • Pre-Mortem Analysis – Imagining a project has failed to identify risks in advance. And using Prospective Hindsight to look at future scenarios as if they already happened.
  • Second-Order Thinking – Considering long-term and indirect consequences of a decision.
  • The Five Whys – Repeatedly asking “why” to get to the root cause of an issue.
  • Inversion Thinking – Flipping a problem to see it from a different angle (e.g., “How could we fail?”).

For risk professionals, debiasing techniques are particularly useful in ensuring objective decision-making. By recognising and mitigating cognitive biases, risk professionals can approach their work objectively, keep a clear view, and make more informed decisions.