Confirmation Bias is the tendency of people to favor information that confirms their own beliefs, goals or desired outcomes (and ignore what doesn’t fit).
A definition of confirmation bias from the book Consumer Behavior:
“The tendency of consumers to interpret ambigious evidence as consistent with their current beliefs.”
A business example of confirmation bias is the hugely popular personality-type quizzes (e.g. which ‘Beatle member are you?’ or ‘What type of Ice Cream are you?’). When people take those quizzes they are typically reaffirming the opinion they already have in their mind (“I’m Mick Jagger of course”).
A trick of those quizzes is that most of the successful ones return you results that are positive (you’re unlikely to find one that asks ‘Which mass murderer are you?).
Why do people do this? According to PsyBlog:
“In an uncertain world, people love to be right because it helps us make sense of things. Indeed some psychologists think it’s akin to a basic drive.”
Another example: let’s say I heard from my nephew that all his friends are using Facebook and so I go out and buy Facebook stock. And then the next day Facebook announces its $19 billion acquisition of What’sApp, and I see the following two headlines:
1) “Facebook Buys What’sApp to Further Its Mission to Connect the World”
2) “Facebook Acquires What’sApp: Investors Uncertain Over High Price Tag”
All other things equal, which headline/opinion do you think I’m going to favor?
Answer: The first one — because it more closely reinforces my own beliefs that Facebook is on the rise.
“Selective memory” is a variant/example of confirmation bias: in which someone remembers only the information that confirms whatever they’re desired outcome at the moment is.
According to Tren Griffin, Charlie Munger is quoted as saying an ancient Greek philosopher once said
“As a man wants, so shall he believe.”
How do you counter your own confirmation bias? Warren Buffett mentioned in this old Fortune Magazine article how Charles Darwin dealt with his own confirmation bias:
“Charles Darwin used to say that whenever he ran into something that contradicted a conclusion he cherished, he was obliged to write the new finding down within 30 minutes. Otherwise his mind would work to reject the discordant information, much as the body rejects transplants. Man’s natural inclination is to cling to his beliefs, particularly if they are reinforced by recent experience–a flaw in our makeup that bears on what happens during secular bull markets and extended periods of stagnation.”
That might explain why Buffett invited a frequent critic of his Berkshire Hathaway company to join him on stage at Berkshire’s 2013 shareholders meeting. Forbes explained why Buffett did this:
“Because heretics challenge the status quo, see things others cannot see, introduce new concepts and ideas that keep the world alive for decades and centuries.”
In other words, Buffett was trying to challenge (not confirm) Berkshire’s own biases. In doing so, Buffett was using another mental model, inversion, to take a bad habit (confirmation bias) and try to invert it to generate some potentially constructive new information.
This article on Inversion continues my quest to list out the Top 100 Mental Models Needed to Succeed in Business, inspired by Charlie Munger.Tweet 1 Comment