This concept also applies to you as an advisor and it’s very important to avoid it as much as possible.
For example, let’s say you’re really bullish on the U.S. stock market. If you let confirmation bias cloud your judgment, then you’ll tend to read bullish research reports and talk to people who support your bullish view of the market. By contrast, you would tend to avoid reading bearish research and avoid talking to people who are bearish, or, if you do talk to them, you would find ways to poke holes in their story.
Here are three ways that being under the spell of confirmation bias can cause you problems:
You dismiss early warning signs of an impending change and that causes you to miss important turning points.
For example, social media is on the rise yet many advisors are ignoring it by saying it’s too time consuming and has too many compliance hurdles to jump through.
You tend to hang around other people who share your belief and to your detriment; you get stuck in “groupthink.”
By not expanding your business network to include diverse opinions, you’ll only get one side of the story—and a slanted one at that.
You stay too long with a belief that’s no longer working and you (and possibly your clients) end up paying a heavy price for it.
For advisors who practice active investment management, sticking too long with a bullish or bearish posture when the market runs the other way could cause problems.
When you think about it, confirmation bias is pervasive in life in general, not just in business. For example, you can probably think of ignored warning signs in your personal life that led to a nasty “surprise.”
How strong is the pull of confirmation bias?
A 2009 meta study published by the American Psychological Association reviewed 91 studies in the area of confirmation bias and concluded that people were nearly two times as likely to seek information which supported their existing view than to seek information which contradicted their current view. That’s a strong pull!
Why is this bias so strong?
It’s very simple—humans don’t like change. We like to keep things the same because we think we know what the outcome will be. The unknown is scary, it’s unpredictable. We’d rather “deal with the devil we know” than face an uncertain future by making a change.
One thing I’ve discovered over the past two decades working with advisors is that those who rise to the top have overcome the pull of confirmation bias. These advisors are change agents. Like Madonna, they continually reinvent themselves. Sure, there are core principles that stay evergreen, but around the edges, they push those edges to the outer limit.
Here are three keys that can help you overcome the strong pull of confirmation bias:
Acknowledge that confirmation bias exists.
Knowing that it exists helps you try to avoid falling into its trap.
Actively seek contradictory opinions.
This is another way of asking what could go wrong with your current opinion and then doing your best to ensure you understand the “other side of the coin.”
“Practice” making changes.
Like athletes in training, the more times you practice changing things, the more comfortable you will become. So, change three things right now that are not career ending. For example, rise 30 minutes earlier in the morning and read an inspirational book, wear your watch on the other wrist, and take a different route to work for the next week. The objective is to disrupt your routine and help you realize that you can survive and thrive with change. When a “real” change is required, you can draw upon all the “practice” changing you’ve done and glide right into it with confidence.