Biases 'R' Us

Let’s face it, a board director’s main job is to think – to think about finances, risks, strategy and people, and about all the other matters that come before a board of directors over the course of a governance year.

And while there is room around the board table for diverse thinking styles - analytical and strategic; people-focused, data-focused and process-focused; big picture thinkers and detailed thinkers; idealists, realists, and pragmatists; risk tolerant and risk averse – there’s no use for fuzzy thinking, muddled thinking or wishful thinking.

So, it’s important for an effective director to be hyper-aware of the barriers to clear thinking that affect a good decision – barriers that all of us have to cope with by virtue of being human. In previous Savvy Director blogs, we’ve written about some of those barriers such as Groupthink (Banish Groupthink from the Boardroom), subconscious assumptions (Don’t Believe Everything You Think), and decision fatigue (Self-Care for the Stressed-Out Director).

In today's Savvy Director blog and an upcoming one, we’ll be diving into two additional barriers to clear thinking - cognitive biases (systematic errors in the way our brain perceives and thinks) and logical fallacies (flaws in the way we apply basic logic to solve problems.)

Whether or not we’re aware of it, cognitive biases have a powerful and pervasive influence on us. Let’s explore further to see how they can interfere with a director’s ability to think clearly and rationally about the issues their board is wrestling with, and what to do about it.

“Most of the mistakes in thinking are inadequacies of perception rather than mistakes of logic.” — Edward de Bono, author of Six Thinking Hats

Cognitive Biases Explained

Cognitive biases are irrational patterns of thinking that occur because of the way our brains work. They cause us to be irrational in how we search for, evaluate, interpret, use, and remember information. And, most importantly for a board of directors, they cause us to be irrational in the way we make decisions.

Cognitive biases affect every area of our life, from how we form memories, to how our beliefs are shaped, and how we form relationships. They often lead to minor issues like forgetting a small detail from a past event. But, unfortunately, they can also lead to major issues, such as avoiding a potentially life-saving medical treatment. And there’s no doubt that we bring these biases into the boardroom.

We all experience cognitive biases to at least some degree, although there’s a lot of individual variation based on factors like age and culture. Because of limitations in our thinking processes, when information is complicated and time is short, we rely on mental shortcuts that help us assess information and make decisions more quickly and easily.

These mental shortcuts are useful for making decisions in many aspects of our lives. But when they surface in a boardroom setting, where rational analysis and critical thinking are called for, they are at the core of many cognitive biases that can reduce the quality of board discussions and prevent optimal decisions.

We are susceptible to an alarming number and wide variety of cognitive biases, roughly categorized as follows:

• Calculation biases that affect how we calculate things such as probabilities or values. In a board context, this could influence how we perceive the likelihood of a particular risk occurring.
• Information biases that affect how we acquire and process information. In a board context, I’ve seen this happen many times when comparing this year’s results to last.
• Belief biases that affect the way we form and modify our beliefs. In a board context, the false consensus effect, which causes us to overestimate how much our values are shared by others, accounts for directors imagining that customer preferences and behaviors are identical to their own.
• Memory biases that affect how we create, retain, and recall memories. In a board context, this cognitive bias seems to afflict long-serving directors who have difficulty letting go of the so-called ‘good old days.’
• Social biases that affect our social perception and behavior, In a board context, this can affect new directors and cause them to worry excessively about their participation.

As you can see, any one of these cognitive biases can come into play in the boardroom, and there are many more. How should a savvy director mitigate them?

Debiasing

It’s not possible to completely eradicate the influence of cognitive biases, but there are debiasing techniques that help people think more rationally, starting with becoming aware of the problem. We can use debiasing techniques on ourselves or on others. But let’s face it, recognizing the problem in ourselves is way more difficult than recognizing it in others!

Here are a few techniques to try. For a more extensive list, check out the debiasing article link in the Resources section at the end of this blog.

• Slow down the reasoning process and make it explicit.
• Improve the way information is presented.
• Consider alternatives.
• Create favorable conditions for proper reasoning (sufficient time, no distractions).
• Create psychological self-distance.

Let’s take a deeper dive into two specific cognitive biases, the confirmation bias and the overkill backfire effect. How do they affect board deliberations and decision making, and what can be done about them?

Seeing What We Want to See

Confirmation bias causes people to deal with information in a way that confirms their pre-existing beliefs. This bias occurs far and wide. Basically, it causes us to see what we want to see. It affects how we view political information, how we invest money, how scientists conduct research, and how doctors diagnose patients. When you think about it, the confirmation bias is likely at the root of many wrongful convictions of innocent persons.

Considering that a huge part of a director’s role is assessing, evaluating, interpreting and recalling information, it’s pretty easy to see that the confirmation bias can create thinking problems and affect board decisions in all sorts of ways.

• Searching for information. When we’re pre-reading the board package as part of our meeting PREP, do we search out and highlight the information that confirms our beliefs and skip over the rest?
• Evaluating information. When management is presenting a proposal at the board meeting, do we pay attention to the slides that conform to our own thinking and drift off when they don’t?
• Interpreting information. When reviewing compliance reports, do we interpret the data in a way that supports what we already thought?
• Recalling information. When we use an expert’s opinion to validate our position on a topic, do we recall only the statements that support our own opinion and forget to mention the parts that don’t?

“We think, each of us, that we're much more rational than we are. And we think that we make our decisions because we have good reasons to make them. Even when it's the other way around. We believe in the reasons, because we've already made the decision.” - Daniel Kahneman, Nobel Prize winning psychologist and economist

The confirmation bias occurs because of our natural desires to avoid finding out that we’re wrong and to find out that we’re right. We can reduce the confirmation bias in others with techniques that counteract those desires.

• Make them aware of this bias. Explain the confirmation bias and why it can be a problem, pointing out the exact way the person is displaying it.
• Make the discussion about finding the right answer instead of defending a belief. Frame the discussion as a journey to find the truth rather than a fight to prove the other person wrong.
• Minimize the unpleasantness of being wrong. Emphasize the value of learning new things. Avoid mocking them for their beliefs.
• Encourage them to give real consideration to information. Spend enough time with the information in an environment without distractions.
• Ask them to think about why their preferred view might be wrong. Alternatively, ask them to think about why competing views could be right.

Of course, it’s important to acknowledge that each of us is subject to the same confirmation bias as everybody else. What to do about that? We can use similar techniques to those above. An added benefit of many of these techniques is they help us understand opposing views better.

Too Much Information!

The overkill backfire effect causes people who encounter a complex explanation to reject it in favor of a simpler alternative and to reinforce their belief in the simpler alternative. We prefer explanations that are simple and easy for our brains to process.

As you would expect, explanations are difficult for our brains to process when they are long and complicated, with a large number of points and a lot of supporting evidence. But they’re also hard to process when they are jumbled or full of technical jargon.

How does this bias play out in the boardroom? Well, information in front of the board usually has all of the characteristics of being hard to process. Large number of points? Check. Lots of supporting evidence? Check. Full of technical jargon? Check.

As a director, it would be great if presentations and reports could be simplified and streamlined to make them less taxing. But until that happens, we should keep in mind that we are susceptible to the overkill backfire effect and take it into consideration when reading or listening.

To mitigate its effects, we can try to identify cases where we feel about to automatically reject a complex explanation, simply because it feels too difficult or tiresome to fully process. If possible, we could ask the presenter to simplify it. We can also try forcing ourselves to slow down our reasoning process and dedicate time and focus to trying to understand it, instead of rejecting it outright.

Your takeaways:

• Awareness is a necessary first step in debiasing.
• Cognitive biases affect the way all of us think and make decisions, whether or not we are aware of them.
• The confirmation bias and the overkill backfire effect occur often in a boardroom setting.
• You can practice debiasing techniques to help you and others think more rationally – in and out of the boardroom.

Resources:

If you are interested in diving deeper into the topic of cognitive biases, the Effectiviology website is a tremendous resource about psychology and philosophy with practical applications. You'll find articles about mental performance, logical fallacies, social psychology and practical philosophy. Each article provides you with key takeaway points, and you can subscribe to the weekly newsletter to get a new article each week.

Below are a few Effectiviology articles on the topic of cognitive biases.

• Cognitive Biases: What They Are and How They Affect You.
• Debiasing: How to Reduce Cognitive Biases in Yourself and Others.
• The Confirmation Bias: Why People See What They Want to See.
• The Overkill Backfire Effect: On The Danger of Presenting Too Much Evidence.

Leave a comment below to get in on the conversation.

Thank you.

Scott

Scott Baldwin is a certified corporate director (ICD.D) and co-founder of DirectorPrep.com – an online hub with hundreds of guideline questions and resources to help prepare for your next board meeting.

Share Your Insight: What thinking problems have you observed in the boardroom and how did you deal with them?