October 20, 2015

Getting Trapped by Confirmation Bias

Decision making may look like a simple process, but the reality is every decision is influenced by a combination of emotional factors and subconscious biases which act to shape most human behaviors. In fact, McKinsey recently released a report stating:

"Our candid conversations with senior executives behind closed doors reveal a similar unease with the quality of decision making and confirm the significant body of research indicating that cognitive biases affect the most important strategic decisions made by the smartest managers in the best companies."1

Barrier/Bias: Confirmation;

Description: The tendency to search for or interpret infomation in a way that confirms one's preconceptions, leading to statistical errors.

Bias affects even business's best and brightest managers. Perhaps by understanding the factors that could impact our ability to make sound decisions we can seek to avoid them. In this brief, we look at one such factor - confirmation bias. This particularly insidious tendency can erroneously lead a person to believe that the result of every decision comes from thorough and objective analysis.

In truth, however, many decisions made over an individual's lifetime result from seeking and positively evaluating information that confirms preconceived notions, while ignoring that which challenges those beliefs. An example of this would be when writing an educational paper searching only for information that supports the argument, or why it is so difficult to convince a stubborn conservative or liberal that their platform has a serious flaw, despite the existence of factual evidence to the contrary. But why is this? The most likely reason, according to Professor Thomas D. Gilovich, a Psychology Professor at Cornell University, is that "confirmatory information is easier to deal with cognitively."2

To evaluate the bias more deeply, it's worth taking a look at a specific real world case. Consider Kodak and Fujifilm. Kodak was once the Apple of its day. Founded in 1880, it was famously known for pioneering technology and innovative marketing.3 Until the 1990s Kodak was commonly rated as one of the world's five most valuable brands, owning 90% of the market for film and 85% of the market for cameras.4 Like Kodak, Fujifilm also enjoyed a near-monopoly in its home market of Japan, but in the 1990s owned just 10% market share in the U.S.5 Today, Fujifilm has an estimated market cap of around 19 billion and in 2012 Kodak announced Chapter 11 bankruptcy; Kodak's share price went from $60 in 2000 to $40 in 2001, to $10 in 2008, and under the $1 threshold by the end of 2011.6

So what happened? In short, Kodak failed to accommodate current trends in the marketplace and thus became obsolete; the movement towards a more digital age made Kodak's technology outdated in the minds of the modern consumer. Kodak and Fujifilm both forecasted a trend towards a more digital age for photography but Fujifilm was the only one to reinvent itself in order to survive. Kodak even developed and built one of the first digital cameras in 1975, but the product was dropped for fear that the camera would cannibalize their existing photography market share!7 In other words, despite overwhelming evidence, Kodak convinced themselves that their market share was untouchable and that digital photography was not going to become mainstream. The result was a slow, incremental demise that began when the digital market flourished.

So how does one combat the decision making barrier we call confirmation bias? A good start would be to look at "the Buffet approach", the methodology Warren Buffet, one of the most successful investors of all time, uses to avoid confirmation bias. The first step is acknowledging that even the most researched and careful decisions can be swayed by this "brain bug."8 The second step is giving voice to opinions that contradict the original conclusion.9 The most effective way of finding these contradicting 'voices' is to consider as much relevant information as possible and rationally evaluate the evidence that information provides.

In conclusion, we see the importance of challenging our decision making processes by realizing that pre-conceived ideas influence our interpretation of facts to fit those ideas rather than changing ideas to fit the facts. The result of a bad decision may take a long time to become evident, so it is important to critically assess the value of all available information before making the decision. Including more people and their varied perspectives in a decision can help to remove the cognitive biases that may otherwise lead to a poor decision being made and the organization suffering as a result.

Check out our Whitepaper to learn more about the science behind decision making and how Powernoodle can help enable your organization make better decisions.

  1. Sibony, O., & Lovallo, D. (2010, March 1). The case for behavioral strategy. Retrieved August 13, 2015. http://www.mckinsey.com/insights/strategy/thecaseforbehavioralstrategy
  2. Ibid.
  3. The last Kodak moment? (2012, January 14). Retrieved August 13, 2015. http://www.economist.com/node/21542796
  4. Ibid.
  5. Ibid.
  6. Welch, M., & Gillespie, N. (2012, January 29). Learning From Kodak's Demise. Retrieved August 13, 2015. http://reason.com/archives/2012/01/29/beyond-duopoly
  7. The last Kodak moment? (2012, January 14). Retrieved August 13, 2015. http://www.economist.com/node/21542796
  8. Dooley, R. (2013, May 1). How Warren Buffett Avoids Getting Trapped by Confirmation Bias. Retrieved August 13, 2015. http://www.forbes.com/sites/rogerdooley/2013/05/07/buffett-confirmation-bias/
  9. Ibid.
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