July 27, 2022

The Importance of Logical Reasoning in Business Decisions

logical reasoning

Logical reasoning is what breaks down the walls of the false beliefs and biases we hold against events, people, or things. It helps to solve problems and challenges that we struggle with. Humans are creatures of habit and we love to follow our beliefs — even if they are incorrect. This makes it challenging at times to overcome our inherent bias or false beliefs.

What Is Logical Reasoning?

Logical reasoning is an orderly process for problem-solving. You work through a set of predefined rules that govern a particular scenario.

There are three basic types of logical reasoning:

  1. Deductive reasoning
  2. Inductive reasoning
  3. Abductive reasoning

Deductive Reasoning

Deductive reasoning puts aside beliefs and uses a formal set of logical rules or data to prove or disprove a hypothesis. It’s often used to answer specific questions.

For example: who is our ideal customer? Rather than relying on anecdotal evidence, a company would evaluate its data to determine the ideal customers. This objective measure can help sales and marketing teams to understand where best to put their efforts.

Inductive Reasoning

In some ways, inductive reasoning is the opposite of deductive reasoning. It involves looking at specific cases to derive a rule.

For example: when video versions of client testimonials are used in sales presentations, closing rates increase. Inductive reasoning shows that you should increase your use of video testimonials.

Abductive Reasoning

Abductive reasoning is similar to inductive reasoning in that you are looking at cases or observations to predict outcomes in cases where you have incomplete information. It’s common in healthcare where doctors try to diagnose patients using the symptoms they observe.

For example: when you’re developing a new project, you have to make some assumptions as to the feature set users will want. Your past experiences and interactions with your customers can help you make logical assumptions about what they want.

While adductive reasoning can help determine patterns and associations, it requires further testing for validation.

Why Is Logical Reasoning Important?

Logical reasoning is important in the workplace because it helps us to see clearly and to problem-solve issues. It brings clarity to issues and helps make sound decisions. Logical reasoning is important in our personal lives as well, because it helps us to make decisions more objectively.

Logical reasoning helps to:

  • Find truths
  • Help focus and solve problems
  • Generate creative ideas
  • Test assumptions
  • Anticipate outcomes

Often, logical reasoning requires gathering underlying data. For example, companies trying to increase their odds of hiring successful salespeople may want to examine the qualities of their top performers to look for patterns. Companies may want to conduct exit interviews to better understand why there is turnover.

Rather than making assumptions, a logical reasoning framework provides a way for business leaders to gather and assess the facts they need to make better business decisions.

How Do Emotions Affect Logical Reasoning?

You might think of logic and emotion as opposites. Logic provides a way to think through things objectively without bias, while emotion can color our reasoning.

Many studies have shown that emotions can impact logical reasoning. For example, an individual’s emotions can impact outcomes. Specifically, those expressing negative emotions are more likely to deviate from the logical construct.

It’s important to control emotions when applying logical reasoning. This can be a challenge in business because you also have to account for the emotions of your customers in how they make decisions. We know, for example, that B2B buyers often make emotional decisions about whether to buy a product and then look for logical reasons to support their decision.

Logical Reasoning and Game Theory

Game theory involves making logical assumptions about how others will behave in the future. In business, this means taking into account what your competitors may do and evaluating how that will impact the decisions you make.

In some cases, you may have factual evidence of the direction a competitor is going, such as a new release about a new market they are entering or a product they are launching. In most cases, however, you need to anticipate the direction using inductive or abductive reasoning. Game theory provides the framework for analyzing your course of action most likely to produce the best outcomes considering how others are playing the game.

For example, you might see that there is a significant market for introducing a new product. Using game theory, you would draw on your knowledge of your competitors to anticipate how they would react and how that might impact your decision. Often, this plays out in logically thinking through scenarios and how that might affect you, such as:

  • What if our competitor dramatically lowers prices to undercut us?
  • What if your competitor gets their product to market first?
  • What if your competitor exits the market?
  • What if new competitors also enter the market?
  • What if our underlying assumptions are wrong?

By examining the moves others may make, you can make better business decisions and be prepared if such moves do occur.

Can You Improve Your Logical Reasoning Skills?

One way to strengthen your logical thinking skills and reinforce their importance is to question things more critically. We often form long-held beliefs that are not valid or no longer valid. As such, it’s important to test assumptions regularly to make sure they still apply. It’s also important to learn to distinguish between data and inference. Gathered properly, data provides us with an objective measurement. However, it’s easy to make incorrect inferences from the data, such as assigning cause and effect where it doesn’t exist.

The more you use a logical framework and apply it to situations, the more it will become second nature. One logic framework that many business leaders use is a five-step process:

  1. Anticipating: Thinking about what is ahead
  2. Critical thinking: Questioning everything
  3. Interpretation: Objectively seek patterns and causal relationships
  4. Decisions: Make decisions about factual evidence you’ve evaluated
  5. Testing and Learning: Validating conclusions and learning from mistakes

Like anything else in life, you can improve your logical reasoning skills by practicing them. It may also help to get business coaching to provide an outside perspective.

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