We know that the research in behavioral finance has already identified a number of potentially harmful biases for the banking business. These biases lead experts and clients to make decisions which cause financial losses. An interesting question worth exploring is if there are any biases incorporated in internal guidelines, as day-to-day banking does not account for biases.
•Finding a typo in a CV or resume leads people to the confirmation bias: It is believed that the candidate in question is not sufficiently qualified, due to the typo, and everything which follows in the CV is interpreted in a way in order to confirm the initial suspicion. This is related to anchoring bias, as found by Daniel Kahneman (2011).
•Another bias which may have also contributed to the banking and financial crisis is the herding instinct in terms of tax benefits for instance. Client advisors followed others in their dealing with tax issues of clients.
•In the day-to-day business, people do not consider the halo effect when they create a list of preferred suppliers, as it is assumed that a certain company is trustworthy without questioning it. If the company is professional in highlighting its strengths and expertise, it is automatically believed that their consultants are qualified or that a particular vendor's software is competitive.
•Another bias that is not considered is the illusion of transparency. There is no internal guideline which alerts employees to avoid this bias. This is also a reason for poor communication in almost every project, because the members of the project think they are transparent. Not communicating properly can produce a useless result.
•In all aspects of banking excellence there is a strong emphasis on team work which might also supports group biases where teams isolate themselves and fail to support the organization. Not considering group biases and building strong teams might be seen as beneficial for the group, but not for the organization itself.
•Since the crisis, banks are dealing with extreme aversion bias. They want to be in the middle of a range of potential outcomes, which is harming productivity and innovation. Not many banks allow themselves to act differently.
•Another bias found in banking is the focusing effect. The entire banking business is focused on reputation and regulation. The focus should be reset in all areas with different intensity. But without noticing it, banking suffers from it since many years. This bias harms banking and makes them persisting in a weak position, which is the reason why a number of banks still has not fully recovered since the crisis.
•A major reason of the crisis was the illusion of control. This bias is still prevalent in day-to-day business and evidence that banking has learned only little about past issues. The illusion of control will cause losses again.
These are examples of a few biases which are very much prevalent in day-to-day business and should be avoided with the help of clear guidelines and instructions. One way in becoming more practical is by circumventing biases and by getting into a state of cognitive ease. Cognitive ease can be compared with mindfulness, where we are in an optimal state of mind and can make better decisions. The most effective way of remaining mindful is the regular practice of meditation.