Impact of data visualization and cognitive psychology in strategic decision making

‍Data exploitation represents a major challenge for businesses. In the digital age, big data has led the way and allows organizations to make better decisions based on data: We are talking about data visualization.

Data visualization, also called “Dataviz”, brings together all the techniques that implement data visualization. The aim is to transform raw and complex data into visual representations in order to be able to interpret them easily.

The applications of data visualization are numerous: understanding sales trends, forecasting the needs of the next quarter, identifying key performance indicators, convincing an investor during a presentation... This search for value is at the heart of organizations' business challenges.

Explosion of digital data

Every day, more than 2.5 quintillion bytes of data are generated. According to recent estimates of Statista, the annual volume of digital data created on a global scale has increased by more than twenty times in the last decade and forecasts expect the annual volume of data created every five years to increase by three to four times. The traditional infographic “Data Never Sleeps” by Domo, which quantifies the data generated every minute on the Internet, shows that we are creating more data every year. The growing democratization of connected objects and the advent of 5G technology would be the main drivers of this explosion of digital data.

In this context, many businesses have to manage massive amounts of data. Beyond the problem of storage and extraction, you also need to be able to to analyze, interpret, and communicate this data. According to the “Big Data — Big Failure” study conducted by Pure Storage, 72% of businesses admit to collecting data they never use, the lack of time (48%) and the lack of internal skills to process this data (46%) would be at the origin of these abandoned data.

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The concept of data visualization

Data visualization is based On Gestalt theory (also called fitness psychology). This theory is based on the premise that the human brain, faced with a set of complex information, seeks to visually structure what it perceives in order to facilitate understanding.

The brain is in fact more comfortable interpreting visual data: visuals are processed 60,000 times faster than texts and 90% of the information transmitted to the brain is visual (Source: Thorpe, Fize & Marlot. Speed of processing in the human visual system, Nature). It should also be noted that the eye contains 70% of our sensory sensors. So when the retina is confronted with an image, information such as shape or color is sent simultaneously to different parts of the brain for immediate processing. Words, on the other hand, require linear processing that requires more time and energy for our brain to understand and react.

It is this rapid visual processing capacity of the brain that data visualization exploits. Data visualization therefore allows the exploration of data by manipulating graphic images, color, brightness, size, shape and movement of visual objects representing aspects of the analyzed data set. As summarized by Charles Miglietti, expert in data visualization “Data visualization is the art of telling numbers in a creative and fun way, where Excel tables fail. In a way, it's putting encrypted information to music.”. Therefore, it is easier to interpret data when it is presented in the form of graphs rather than in a table.

An effective way to avoid cognitive biases and simplify access to information

Before getting to the heart of the matter, let's take a look at a great man: Daniel Kahneman. Although he is a doctor in psychology and an expert in cognitive psychology, he will receive his greatest distinction in 2002 in a completely different field. His work challenging certain preconceived ideas - that man is a rational animal and that economics cannot be considered an experimental science - was in fact rewarded with the Nobel Prize in economics.

Contrary to Alan Smith's postulate, which defined human beings asHomo economicus, Kahneman, breaks away from this vision by showing that human beings are not always rational and that their choices can be subject to cognitive biases leading them to poor decisions.

The brain according to Kahneman: two systems, two speeds of thought

In order to explain the tendency of humans to make biased decisions, Daniel Kahneman schematizes the functioning of the brain into two systems of thought: one intuitive -system 1-, the other thoughtful and logical -system 2.

Importantly, these two systems are just concepts, they don't physically exist in your brain. This is a simple way to explain a concept.

System 1, the automatic pilot

The first thought system works automatically, requires no conscious effort and is beyond our control. It operates by combining ideas to each other in a cascade, where an image and/or word can trigger a series of other ideas. This way of thinking makes it possible, for example, to recognize familiar situations and to extrapolate appropriate behaviors accordingly. These associations are generally consistent with each other, but they do not necessarily follow logical reasoning. Being the result of millions of years of evolution, this instinctive approach is very effective in completing our daily tasks, but it is also responsible for illusions and cognitive biases.

Let's illustrate how this first system worked with a simple question: “In his ark, how many animals of each species did Moses transport?” The answer is around 5000 according to experts. But that is not the point of this question.

We invite you to link the formulated question. Did you notice that we deliberately marked Moses instead of Noah? Moses did not save any animal in his ark, no, it was Noah.

On the other hand, this inconsistency did not hinder your system 1 in any way, because the two biblical references combine well, with the ark on the one hand and Moses on the other.

Daniel Kahenman also insists that this ease of our brain in deceiving us is more evident when we are in a pleasant and hospitable environment.

System 2, the control tower

As for system 2, it is logical and thoughtful. It allows complex operations to be carried out, for example 45*987. However, everything is not rosy with this second system, otherwise we would use it more often. Human beings are lazy. However, when you solve a complex problem using demanding reasoning, your brain consumes more energy. It is almost a moderate physical effort.

To further illustrate human laziness and the conflict of internal functioning between the two systems, see the following example: imagine yourself in the company of friends walking in the forest. The walking action is involuntary, you don't need to think about putting one foot in front of the other. Now ask the group to calculate 45*987. The majority of people will stop walking to calculate. From this example, it is clear that these two systems are not designed to work together.

Cognitive biases and decision making in a professional environment

The way the human brain works that we described earlier causes distortions in our behavior, which means it causes systematic errors in how we think and act. Unfortunately, these cognitive biases are not limited to the puzzles posed by researchers. They also affect professionals from a variety of sectors, including CEOs, doctors, insurers, researchers, and even politicians.

Whether it is substitution bias, heuristic, affect, anchoring, or retrospective bias, no professional is spared from these biases, quite the opposite.

Thus, on a daily basis and especially in a work environment prone to manipulating a lot of data such as finance or marketing, it is necessary to eliminate all sources of error that can lead to an intuitive judgment that is too fast and erroneous (system 1).

For this, all tools to highlight fluctuations or other random behaviors are recommended and data visualization is one of them.

Data visualization makes it easier to make decisions

Data visualization is increasingly used in business to deal with massive data creation and processing difficulties. Its use brings numerous benefits and contributes to facilitating strategic decision-making.

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Simplifying information to make it easier to understand data

Large quantities of raw data are often difficult to decipher. Data visualization makes it possible to sort the data available for focus on the essentials. This technique formats the data that is most useful and sought after by the recipient in order to facilitate understanding. When data is easily interpretable, it simplifies decision making.

Thanks to the use of data visualization, decision makers can more easily interpret vast amounts of data clearly and consistently, identify relevant information, or identify key performance indicators without errors.

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Accelerate decision making

Because data in visual form is more easily understandable, data visualization represents A time-saver not negligible and can increase the decision-making process. Data access is faster, more accurate, and more efficient, important data is highlighted, which reduces the margin for misunderstanding and reading errors, and speeds up processes. Thanks to data visualization, at a glance, you can get a quick and understandable overview of the situation.

A report conducted by the American Management Association highlights the results of a study on visualization and decision-making. According to this report, visualization significantly improves business decision-making. According to the AMA, 64% of participants in this study who used visualization processes made decisions more quickly. This report also cites third-party studies that demonstrate that visual language helps solve problems, improving efficiency by 19%, with a productivity gain of 22% in 13% less time. According to the same report, the use of data visualization during a business appointment would shorten the appointment time by 24%.

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Comparing different data sets

The research have shown that viewing the decision-making environment from multiple perspectives improves the decision-maker's ability to make more informed choices.

One of the advantages of data visualization is that it allows to identify correlations between relevant independent variables (for example between operations and results). By using data visualization, decision makers can easily identify key performance indicators on which to rely to make decisions.

Comparing different data sets also allows to identify market trends. These trends make more sense when represented graphically and make them easier to analyze. This type of information is crucial for a company to help determine which market to focus its efforts on.

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Tell a story with your data

Data visualization is certainly an analysis tool, but also a real communication tool dedicated to storytelling. Storytelling is a communication method that consists To tell a story to captivate your audience by promoting the memory of the message thanks to emotional factors. This technique has been democratized in large part thanks to TED conferences.

Data visualization is the ideal complement to storytelling since it allows Tell a story with data. Data visualization and graphic representations are often associated, but data visualization goes further since it involves creative professions such as video animation or web design.

Data storytelling is based on 3 elements (data, visuals, and narration) which, put together, will allow to get a message across more easily to an audience : we also talk about data storytelling. Combining data and storytelling Inserts emotion into the decision-making process of the recipient to improve it.

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Improving communication

Data visualization gives access to legible, clear and precise information, so it is a excellent communication tool to raise awareness and convince, whether for internal employees or for prospects/customers.

In addition, simplifying the data makes this information understandable to as many people as possible, thus minimizing the risk of misinterpreting the figures.

Finally, communicating data using visual representations promotes better retention of information as shown by a study conducted by Paul Martin Lester which shows that We remember 80% of what we see compared to only 20% of what we read. Presenting results in this format is therefore more powerful and persuasive and makes it possible to amplify the impact of the presentation on the audience.

The exploitation of collected data plays a key role in the success of companies, in particular in strategic management for decision-making purposes. The amount of data they have is growing exponentially, reinforcing the importance of data visualization.

Data visualization allows organizations to create actionable conclusions from their data, leading to better decision making. Its effectiveness is based on the fact that a majority of us grasp and remember information better when it is represented visually.

Its effectiveness is based on the fact that a majority of us grasp and remember information better when it is represented visually.

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