Don’t listen to what the economists say. We humans are not rational creatures. Our mental blindspots are huge and we’re prey to literally hundreds of cognitive biases.
These affect any decisions made by anyone – from our most level-headed leaders right through to the tinfoil-hat-wearing illiterati.
One of the most insidious of these maladaptive influences is confirmation bias.
‘But I don’t have confirmation bias! I’m as balanced as they come!’ I hear you say.
To which I reply, ‘Your belief in your lack of confirmation bias merely confirms your bias towards believing in your own imperviousness to bias’.
While pointing out confirmation biases rarely wins me friends, it’s a worthwhile exercise when you’re an insurance professional, because confirmation bias poses a serious threat to businesses.
Are you aware of how your mental tendency to agree with yourself impairs your company? Let’s look at the whole issue a bit closer.
What is Confirmation Bias?
Simply put, confirmation bias is the tendency to look for and overvalue information that supports your existing beliefs (which, by the way, may or may not be rational), while simultaneously downplaying information that contradicts those beliefs.
As humans, we really like being right. In fact, according to decision science expert Paul Windschitl, we’re 36% more concerned with being right than we are worried about being wrong.
What’s so wrong with wanting to be right?
3 Ways Confirmation Bias Affects Your Business
The reality is that you, me and anyone else is wrong about a lot of things a lot of the time. And ill-informed decision making rarely garners ideal results.
Here are three ways confirmation bias might be affecting the business decisions you make:
1. Assuming Your Opinions are Factual
The less you know about any given subject, the more likely you are to have a stronger unconscious bias towards believing you’re right about it. And the stronger your biases, the more likely you are to make an ill-informed decision.
Smart people are unusually susceptible to this. How? Let’s take the example of a talented doctor working in a hospital. She’s an expert in her own field and has become very good at backing herself. Medicine is the only career path she’s tried and she’s been highly successful. She’s worked hard and everything has gone right so far.
Therefore, she has a subconscious bias that she’ll enjoy the same success when she decides to leave the hospital and launch herself as an independent general practitioner. However, she hasn’t put anywhere near the same time, effort and money into running businesses as she put into becoming a great doctor.
She opens her GP office and things don’t go well. Yes, she’s working hard and giving quality care. She thinks she’s doing everything right, but her business just can’t catch a break for some reason.
She doesn’t know she has the confirmation bias blinkers on. Instead of perceiving the actual factors governing her business success, she works harder and harder and longer and longer hours. The business still haemorrhages money. Eventually it collapses.
To the end she still believed she was doing everything right and, simply, not working hard enough.
2. The Boss Is Always Right (Except When They’re Wrong)
Many business owners I know love the old adage ‘if it ain’t broke, don’t fix it’ because a big part of their role is ruthlessly prioritising what is broke. However, just because you think you can accurately prioritise issues within your company, doesn’t mean you’re actually doing it.
It can be really hard to take heed when people who have no vested interest in whether you succeed or fail point out some flaw in your operations.
Frontline staff are also often the first to detect a problem within a company, yet just as often they don’t want to risk telling the boss something he or she won’t want to hear. Instead of raising an issue they:
- Let small problems silently grow into big ones
- Create their own inefficient solutions to the problems
- Skew the information they provide to management in order to make things look rosier than they really are.
By the time the problem becomes obvious to the boss, it can be too late. Everyone in senior management is blindsided and left wondering, ‘How did this go so wrong so fast!’
It went wrong when management believed its own assumption that problems it wasn’t seeing didn’t exist.
3. Past Performance Is Not An Indicator Of Future Performance
You’ve probably heard this at the end of every superannuation commercial, but have you ever stopped to consider the implications it has for your business?
One of the greatest confirmation biases that business owners face is assuming that because their business has done well in the past it is prepared to do well in the future.
Professor Raymond Nickerson, the world’s leading confirmation bias researcher, explains our tendency to preference conclusions we make early on in our business journey:
“When a person must draw a conclusion on the basis of information acquired and integrated over time, the information acquired early in the process is likely to carry more weight than that acquired later.”
Thus, we over-value the way we did things when business was going well. Just because your business experienced growth last year, it doesn’t mean you were the main factor in that growth or that the growth will naturally continue this year.
How Confirmation Bias Works And Why We All Have It
Don’t think that confirmation bias is just ego taking over. Although overconfidence plays a large role in many poor business decisions, the root cause of confirmation bias harkens back to the fight or flight response our primitive ancestors needed to stay alive.
Early humans used cognitive-processing shortcuts like fight or flight to quickly and efficiently respond to life or death circumstances.
With the stakes so high, it was always better to err on the side of caution: privileging harmful past experiences over careful evaluation of the information at hand. After all, it is better to mistake a thousand trees for a tiger and run away than to mistake one tiger for a tree and stand still!
Today the threat of being eaten alive has all but disappeared, yet the cognitive survival mechanisms that resulted from about a million years of facing such risks are still hard-wired into us. They still govern much of our day-to-day decision making.
How You Can Protect Your Business From Your Biases
The good news is there are steps to take to mitigate the negative effects of your cognitive biases for your business. Here are four:
1. Acknowledge Your Biases
Confirmation bias is particularly problematic when you either:
- Genuinely don’t know it is influencing you
- Believe you can’t be influenced in the first place.
As they say in AA, ‘acknowledging you have a problem is the first step’. Only when you’re aware of the role confirmation bias plays in your life can you begin to work within its effects.
No, you’ll never be able to completely quash your biases. But, if you can be a little more aware of yours than your competitors are of theirs, you’ll be 10 streets ahead.
Ironically, you have to admit how vulnerable you are in order to reduce your vulnerability.
2. Collaborate With Independent Third Parties
As an insurance broker, I have the privilege of seeing how many different businesses in many different industries operate.
It’s my job to learn the ins-and-outs of these businesses so that I can offer accurate risk advice to owners who, while exceptional at what they do, can often no longer see the forest for the trees. Often, I have uncomfortable things to say.
The business owners who continue to thrive after I’ve come on board tend to be those who fully embrace a collaborative approach.
To put it plainly, it is easier to see someone else’s biases than it is to see your own. By allowing fresh eyes to take a look at your business, you’ll recognise the blindspots that your own cognitive biases have caused.
3. Encourage Dissent
Yep, you should actively seek out opinions, attitudes and beliefs that are uncomfortable. It’s very healthy for your staff to feel comfortable speaking out. Dissent in the ranks is exactly what leaders need when a tiger is picking off troops in the rear.
Don’t let a belief in your own superior business acumen or a fear of being undermined cloud your judgement. Great leaders are receptive to criticism and questioning. They encourage critical analysis. This is how they ensure that their company’s culture is free from the toxic, compounding effects of confirmation bias.
Many multinational companies have suffered because their leaders raised an army of ‘yes men’. Lee Iacocca at Chrysler is a legendary example. Learn from their mistakes!
4. Question Your Immediate Reactions
The human brain is naturally lazy. Combatting this laziness with intentional critical thinking is one of the most effective ways to fend off the negative effects of confirmation biases.
The next time you’re in the middle of a conversation and someone makes a statement you don’t agree with, have the insight to stop and ask yourself why you don’t agree.
Is it simply because you have an alternative opinion, or are you privy to factual information the other party isn’t?
Do you have a preconceived bias on that particular subject?
If so, where does that bias stem from?
Train your brain to ask these questions and you will become more self-aware and less susceptible to unconscious bias (just don’t start thinking you’re completely infallible!).
The Bottom Line
There is a Mark Twain quote I come back to almost every day:
It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.
Because of the way human brains have developed, we all have confirmation bias. How you deal with your personal biases has a huge effect on your business.
Ignore them or refuse to acknowledge their existence and you’ll be exposed to risks that could destroy you.
Accept that your decision making is influenced by invisible biases then learn how to counter them, and you’ll be able to take risks your competitors think are too ‘risky’. You’ll be able to repeat successes they couldn’t pull off even once. And you’ll reap rewards while they languish in ill-informed decisions.
In my field, the simplest proof that defying your confirmation bias works happens when I advise a client to get cover against a certain kind of incident.
I can see how their growth is continually ramping up its probability, but their confirmation bias means they can’t see this. You’d be amazed how often the incident happens within 18 months.
The choice to confront your cognitive shortcomings is yours. If you’re ready to have your eyes opened to more of the bigger picture, drop me a line at morgan.appleby@alleviate.insure or call 1300 253 848.
