Blind spots (2): Confirmation Bias, granddaddy of all biases

“Whether we regard someone’s opinion as a fact or as an opinion depends on whether they are criticizing or complimenting us.” ― Mokokoma Mokhonoana

Two weeks ago, I wrote on a psychological blind spot called ‘Bait and Switch”. This week I am going to write on one of the most common biases that afflict us — “Confirmation Bias”.

I recently bought non-trivial amount of stock of a company called Deepak Nitrite Ltd. I understand that Deepak Nitrite is one of India’s leading and fastest-growing chemical intermediates manufacturing companies. I bought this stock on the advice of my investment advisor and I do not have a personal view on the investment potential of this firm. I did do some basic analysis of the company and developed a high level understanding of how company could create extraordinary value to its shareholders over a period of next 5–10 years. A few days back, I came across a very detailed analysis on Deepak Nitrite from a reasonably well known and well respected investor. This report was quite tentative on the prospects of Deepak Nitrite’s stock which the author substantiated by pointing out various potential de-railers. This bothered me for a few minutes but then I was quick to dismiss this report because I thought the author’s assumptions were very conservative. It took a couple more days for me to realize that confirmation bias was playing a role in me dismissing a well-reasoned perspective as it was against what I was wanting and hoping to hear.

Confirmation bias is the tendency of our brain to filter out all disconfirming information on any of our deeply held positions/views/opinions and seek only supporting information. This probably is the grand-daddy of all biases. It is widely prevalent among us and shapes our worldviews, life’s philosophies and has an extraordinary impact on the trajectories of our lives.

“Data has an annoying way of conforming itself to support whatever point of view we want it to support.” ― Clayton M. Christensen

Purely from investment perspective, real estate has returned ordinary returns to most people — not to speak of the hassle of owning and maintaining real estate. Despite hard numbers to prove this, most people tend to get swayed by exceptional returns that very few have ever been able to generate. Ordinary performance numbers of most real estate investments just do not register. On the other hand, despite having had good returns on real estate investments, I do not believe in the investment potential of real estate as an asset class. I somehow, filter out my own favourable experience. Confirmation bias on both sides of the equation here.

As a hypochondriac, once I think I’m coming down with a sickness, I quickly start seeing symptoms of the sickness.

To give a few more examples, we regularly see confirmation bias playing big role in reinforcing one’s views on theism, atheism, political systems and ideologies. It is quite common even in diagnostic and treatment methods chosen by medical professionals.

Confirmation bias tends to have a stronger grip in subjective and/or complex matters whereas it is relatively weaker in objective and/or simple beliefs.

Why do we suffer from confirmation bias? Like most things about brain, there is no definite answer but various hypotheses are offered. Also, characteristic to all things brain, it is probably rooted in our human evolution from hunter gatherer phase. I imagine that animals do not suffer from confirmation bias as they are perpetually locked in the present. We humans however, have conceptions of past, present and future and hence we develop beliefs and views so that we can efficiently process infinitude of new information that bombards us every day. It is not just difficult but logistically impossible to assess each piece of new information objectively and update our internal inventory of views/beliefs accordingly. In any case, I’m not even sure if our conscious mind has a big role to play in how we process new information. Information that enters our brain through various sensory organs is largely processed and organized automatically by the non-conscious faculties of our brain.

Because flipping or changing deeply held beliefs could negatively impact one’s self image, it is quite likely confirmation bias may additionally serve the purpose of protecting self-worth of individuals.

Once we know about the existence of this bias, it must be easy to fix it. I don’t think it is, assuming it is possible to fix at all. It is impossible to undo hundreds of thousands of years of evolution. Being objective, seeking diverse perspectives, thinking from first principles are easy suggestions to address this bias but try doing this continuously for an hour and then you will realize that it is not practical. It is energy intensive and is hard to keep up with.

Is there nothing we can do about this — for the largest part, yes. But there is definitely a small part that can be addressed. Do not bother to correct this bias while processing everything that happens to us. Pick a couple of important areas of your life and try your best to account for this bias in these areas. Examples of areas could be: health, relationship with family and society, personal finance and career. For all the big decisions that you take in these areas, you may apply a suggestion from Charles Munger — “invert, always invert” — Explicitly try to disconfirm what you think needs to work for you to achieve the goal. Once this is done, account for those factors in your plan.

PS: on the day I wrote this piece, stock price of Deepak Nitrite Ltd fell by 5.76% but my confirmation bias remained completely in tact

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