Overcomming Confirmation Bias

Confirmation Bias1 is a real and material problem for us as individuals and as a society. It destroys our ability to make intelligent and informed decisions. Although it occurs subconsciously and reflexively the bias is not impossible to overcome.


The best way to overcome it is to take an assertion or opinion and try to prove that it is false.

For example -

A money manager says that he or she adds value by selling stocks that have declined by 20 percent.

Try and prove that the assertion (value is added) is false by asking:

How did the “sold” stocks do after they were sold?

Another example –

A consulting firm tells you it achieves superior results by firing underperforming money managers.

Test the assertion (that they achieve superior results) by asking for data on the performance of those “fired” managers after they were fired.

Finally-

If you think you are a good stock picker, then take a look at three groups of stocks.

Those you own.
Those you have already sold.
Those you thought about buying but ultimately didn’t.

In deep east Texas they don’t say “you’re right.” They say “you ain’t wrong.” Who would have thought that the Deep East Texans would even know about the scientific method? Bubba Newton? Or maybe Billy Ray Bob Bacon.

1. In an earlier Observation I discussed Confirmation Bias. You can find that Observation at: http://gregtevis.blogspot.com/2011/08/why-impasse.html