How Confirmation Bias Reduces Business Profits (Wise Decision Maker Guide 67)

Greetings Decision maker,

Have you heard about “Dieselgate?” The German car giant Volkswagen acknowledged in September 2015 that it used cheating software to give false readings when its VW and Audi cars underwent emission tests. The revelation shook up the car industry. It led to the resignation of CEO Martin Winterkorn, along with several other top leaders. Volkswagen’s stock fell more than 40% over the next few days. The overall cost of the scandal to the company has been estimated at over $20 billion.

Of course, the discovery of this falsehood was inevitable. It’s similar to how the faults with Boeing’s 737 MAX would inevitably be discovered. So would Enron, WorldCom, or Tyco’s accounting fraud around the turn of the millennium.

So what’s going on here? Why do so many business leaders at top companies who are highly successful wear rose-colored glasses that prevent them from seeing obvious points of failure? And it’s not simply top companies. Smaller versions of the same problem occur every day. Why do you think most restaurants fail in less than 3 years after opening their doors?

It’s not like their owners set out to fail. It’s simply that they didn’t want to see the truth about the marketplace.

To learn more, check out this blog.

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What's Up With Me

Russia has been rattling its nuclear saber on and off since it invaded Ukraine. At first, I thought this saber-rattling was cheap talk, without any intent to follow through. However, in the last couple of weeks, I’ve grown increasingly concerned, because forecasting markets such as Metaculus have shown a sharp increase in the risk of nuclear war. Forecasting markets - which aggregate the opinions of many people into a single forecast - have been shown by research to be the best available tool of predicting complex outcomes, much better than individual experts or groups of experts. That’s because once you have enough people participating, the noise of individual bias tends to cancel out. Thus, I’ve been pretty concerned by the fact that this Metaculus question on whether there will be “At least 1 Nuclear Detonation in War by 2050,” jumped from 22% of the forecasters saying “Yes” in February to 26% in late March 2022, to 33% in late April 2022. That 50% increase - from 22% to 33% - does not bode well for our future.

Now, do I think that the use of a nuclear weapon is likely in the near future? I think the chance is small. But I also didn’t think that the chance of COVID turning into a major pandemic was likely when I first heard about it. Still, to account for this small chance, I took steps to prepare myself and my clients for the small-probability, high-impact prospect of a pandemic, and I - and they - are very glad for the prep. So I am doing prep to address the prospect of nuclear war.

Recommendations for You

While a nuclear war would be terrible, you can take steps to survive a nuclear blast, as described in this guide. Knowledge is power, and I recommend you check it out. The preparatory steps it recommends overlap with stuff you ought to do anyway, such as having a secure location where you can shelter in place against a natural emergency such as a tornado, making an emergency kit, getting sufficient shelf-stable food supplies for a month, and so on. And the basic action steps involve getting into shelter, ideally a deep basement, and avoiding going out for 48 hours to allow fallout radiation to settle: the guide has much more info. Let’s cross our fingers that we never need that info, but let’s follow the Boy Scout model of being prepared, rather than being blind to high-impact, low-probability risks.

Help Me Serve Your Needs

Does going against your own beliefs make you uncomfortable? What steps can you take to eliminate confirmation bias in your decision-making process? What measures will you take based on this article/video/podcast to cultivate a work culture that focuses on reality and encourages healthy disagreement?

Would love to get your feedback! Helping you avoid dangerous threats and missed opportunities is my highest aspiration. Any feedback you can provide on this content - or anything else - will help me provide you with more value for your success.

Decisively Yours,

Gleb

Let's be safe! 👍
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