Detecting Bias in Your Decision-Making

Warren Buffett is regarded as one of the most successful investors in history.  He and his partner, Charlie Munger, attribute a large part of the success of Berkshire Hathaway to the partnership’s ability to make investment decisions without the influence of cognitive bias that risk every human decision.

Whether it’s about investments, business strategy, political candidates, or personal matters, we all try to make good decisions. Unfortunately, emotion and bias is part of human psychology.  While we can’t eliminate bias completely, we can each develop our own toolkit for detecting and mitigating against those unhelpful mental quirks that can lead us down the wrong path if we’re not careful.

Paul Graham of Y Combinator has written a thoughtful essay describing an elegant but subtle method of detecting bias in the evaluation of applicant pools.  The interesting idea in Graham’s observation is that it allows third-parties to detect bias in an organization’s decision-making, even if that organization makes efforts to screen certain details of its process.

Graham suggests that bias can be detected whenever “(a) you have at least a random sample of the applicants that were selected, (b) their subsequent performance is measured, and (c) the groups of applicants you’re comparing have roughly equal distribution of ability.”  Graham explains that in these circumstances, bias can be measured by comparing the back-end success of different groups of applicants, even if you cannot view the applicant pool itself:

How does it work? Think about what it means to be biased. What it means for a selection process to be biased against applicants of type x is that it’s harder for them to make it through. Which means applicants of type x have to be better to get selected than applicants not of type x. Which means applicants of type x who do make it through the selection process will outperform other successful applicants. And if the performance of all the successful applicants is measured, you’ll know if they do.

Graham provides a helpful example of detecting gender bias in the venture capital world:

For example, many suspect that venture capital firms are biased against female founders. This would be easy to detect: among their portfolio companies, do startups with female founders outperform those without? A couple months ago, one VC firm (almost certainly unintentionally) published a study showing bias of this type. First Round Capital found that among its portfolio companies, startups with female founders outperformed those without by 63%.

Graham’s idea seems applicable to any process through which various individuals or opportunities are screened for participation or selection through some pre-defined criteria.  This could include hiring decisions, investment decisions, account or client decisions, or media or networking opportunities, just to name a few.  If you find that a certain group of applicants, or investments, or account type is outperforming the average of the total selected pool, you may have revealed some cognitive bias in your process disposed against the higher-performing group.

Improving decision-making requires a constant eye scanning your processes for places where bias might hide, and from which it might rise up to influence a decision.  Couple Graham’s idea with Shane Parrish’s The Work Required to Have an Opinion and Musashi’s tactics for understanding the strength and weakness in your position.

Finding Peace by Focusing on the Things in Your Control

It’s Monday morning.  You raced around all weekend, doing errands, buying groceries, shuttling kids to their playdates and practices.  You fit in some time with your spouse or friends on the evenings.  Sunday evening was the predictable mad scramble of planning, packing, and preparing for another busy week, with the clouds of anxiety gathering in your mind as you think about how busy, frenetic, and stressful the coming work and school week will be.  How do you feel on your Monday morning?  Are you behind schedule, anxious, impatient and weighed down by the worry of getting everything right?  Is there any way to shift this mindset to one focused on opportunity and to shed some of the stress?

Nearly two thousand years ago, Epictetus wrestled with this question.  Epictetus (c. AD 55-135), a Stoic philosopher living in the Roman Empire, believed that our capacity to be happy lies entirely in ourselves.  He taught through a series of discourses, many of which have been preserved.  A shorter version of the principal themes of his discourses was recorded in the Encheiridon, or Manual.  According to Epictetus and the Stoics, events are neither good nor bad, but our reactions to those events may be good or bad.  Our experience is, therefore, dictated by the sum of our reactions to the events of our life.

Epictetus begins his work the Encheiridion by distinguishing the things in our control with the things out of our control:

“Of things some are in our power, and others are not.  In our power are opinion, movement toward a thing, desire, aversion (turning from a thing); and in a word, whatever are our own acts: not in our power are the body, property, reputation, offices (magisterial power), and in a word, whatever are not our own acts.”

We have control over our opinion, movement, desire and aversion — “our own acts.”  We lack control over our bodies, our belongings, and our success.  Recognition of this distinction is important, because it is only by differentiating the things we control from the things we do not control that we can find freedom.  According to Epictetus, “the things in our power are by nature free,” but “the things not in our power are weak,” and “in the power of others.”

Suffering lies in our confusion about what we control:

“Remember then that if you think the things which are by nature slavish to be free, and the things which are in the power of others to be your own, you will be hindered, you will lament, you will be disturbed….”

On the other hand, keeping a clear mind about the things that lie in our control is the pathway to mental freedom:

“If you think that only which is your own to be your own, and if you think that what is another’s, as it really is, belongs to another, no man will ever compel you, no man will hinder you, you will never blame any man, you will accuse no man, you will do nothing involuntarily (against your will), no man will harm you, you will have no enemy, for you will not suffer any harm.”

Epictetus’s “live and let live” message of focusing only on the things you can control is easy enough to remember and practice when things are going well.  But how do we implement this type of mental discipline in tough times?  Epictetus recommends the practice of reflection in difficult circumstances as a means to develop peace and find opportunity.

First, Epictetus suggests that we examine obstacles closely to understand exactly what limitation they present:

“Disease is an impediment to the body, but not to the will, unless the will itself chooses.  Lameness is an impediment to the leg, but not to the will.  And add this reflection on the occasion of everything that happens; for you will find it an impediment to something else, but not to yourself.”

We all face obstacles in life.  Often times, however, the obstacle is not the barrier we may initially perceive.  Most importantly, Epictetus reminds us that there can be no obstacle to our own willpower that arises externally.  This is squarely in our own power.  Reviving our willpower in the face of difficulty can be a matter of examining challenge for opportunity:

On the occasion of every accident (event) that befalls you, remember to turn to yourself and inquire what power you have for turning it to use.

The suggestion here, is not that difficult times are easy.  We all face challenges that frustrate us, anger us, and hurt us.  The lessons in those moments, Epictetus suggests, is that pain can teach endurance, not getting what we want can teach patience, dealing with abusive people in our lives can teach understanding.

Finding this pathway to understanding requires us to remember Epictetus’s first point: focus on the things in your control.  We cannot control our external successes or failures, or how others view or treat us.  By remembering this, and developing a practice of reflection, we can find equanimity and peace in our relation to the world.  Epictetus writes that the “condition and characteristic of an uninstructed person” is that “he never expects from himself advantage nor harm, but from externals.”  In contrast, an instructed person “expects all advantage and all harm from himself.”  Ultimately, this is our choice to make:

“You must be one man, either good or bad.  You must either cultivate your own ruling faculty, or external things; you must either exercise your skill on internal things or on external things; that is, you must either maintain the position of a philosopher or that of a common man.”

Epictetus’s belief is that if we practice this, a better view of life awaits:

Seek not the that the things which happen should happen as you wish; but with the things which happen to be as they are, and you will have a tranquil flow of life.

Go tackle your Monday morning.  If it isn’t perfect – and whose ever is? – draw a bit of strength from Epictetus by remembering that while you can’t control the day, you can find peace in your reaction to it.

Musashi Miyamoto on Training to Proper Perspective

Are there ways to prepare for and deal with conflict that will allow you to maximize your chances for positive outcomes?  In both business and personal interactions, we often enjoy finding collaborative and cooperative resolutions to disputes.  Nonetheless, conflict is inevitable.  How do you respond in tense moments?  Do you find yourself overcome with anger, emotion, and anxiety?  Does your judgment cloud and your decision-making suffer?  Why are some people able to stay grounded, maintain a clear, calm view, and make good decisions in the midst of the most chaotic disputes?

Musashi Miyamoto explores this fundamental challenge in The Book of Five Rings.  Musashi was an expert Japanese swordsman and ronin who lived from 1584 to 1645.  After developing an unparalleled skill in swordsmanship and winning 60 duels, he developed the Niten-ryu school of swordsmanship and authored The Book of Five Rings.  On its face, the book is a technical manual of swordsmanship, but read more broadly, it is a masterful piece on strategy, tactics, and philosophy that is relevant today.

Musashi believes that victory in conflict is dependent upon the ability to perceive the entire adversarial situation from multiple perspectives.  By observing clearly the situation from your own point of view, your opponent’s point of view, and a neutral point of view, you place yourself in the best position to act with clear intent and with good judgment.

Statue of Musashi Miyamoto fighting against his rival Sasaki Kojiro. Musashi defeated Kojiro.

According to Musashi, success in battle begins with your own ability to maintain clear vision and perspective in difficult times.  Clear vision will allow you to clearly view your position, your opponent’s position, and where relative advantages may lie on your battlefield.  Musashi instructs:

Where you hold your sword depends on your relationship to the opponent, depends on the place, and must conform to the situation; wherever you hold it, the idea is to hold it so that it will be easy to kill the opponent.

Understanding your best position of advantage requires not only knowledge of your own potential attack, but also the place and the position of your opponent.  Musashi advises us to conceive of our attack in relation to the condition of the environment around us: “Position yourself with the sun at your back.”  In other words, advance your argument or your negotiating position only after you understand the external factors that may impact the correctness or effectiveness of that position is unwise.  This is sometimes easier said than done:

“Observation and perception are two separate things; the observing eye is stronger; the perceiving eye is weaker.  A specialty of martial arts is to see that which is far away closely and to see that which is nearby from a distance.”

Musashi’s lesson is that in every moment, we have blind spots.  In a dispute, we take positions and make arguments.  We believe that those positions and arguments are based on facts.  If our opponent disagrees, we conclude that it is because he or she has misunderstood the facts.  This may or may not be true; we cannot truly understand the strength of our position and the best path for attack unless we challenge ourselves to view our own perspective from afar and the distant perspective from up close.

Become the opponent.”

Good strategic decisions during conflict require an understanding not only of the strengths and weaknesses of your own position, but of your opponent’s position as well. Musashi advises, “The way to win in a battle…is to know the rhythms of the specific opponents, and use rhythms that your opponents do not expect.”  He continues to counsel, “Whenever opponents try to attack you, let them go ahead and do anything that is useless, while preventing them from doing anything useful.”  This is intuitive – to attack in ways that your opponent may not expect, and encourage your opponent to waste energy on fruitless efforts.  It will be impossible, however, to truly understand to succeed in that effort, until you fully understand your opponent’s position.  That takes study.

Shane Parrish, at Farnam Street, wrote a truly excellent piece called “The Work Required to Have an Opinion.”  In his piece, Parrish quotes Charlie Munger as saying, I never allow myself to have an opinion on anything that I don’t know the other side’s argument better than they do.”  Munger’s comment echoes Musashi’s points on tactics.  You cannot have confidence in your position until you know its strengths and weaknesses.  This requires you to do the work to question your own position, to attack it, to test it, and to scrutinize it, just as your opponent will.  By doing this work, you will develop an understanding of the perspective of your opponent.  You will learn what your opponent likely believes his or her strengths to be, and what your opponent’s goals are.  From that effort, your own position and plan of strategy will become more clear.

Musashi provides nine specific suggestions for developing this complete strategic perspective:

  1. Think of what is right and true (i.e., check your assumptions).
  2. Practice and cultivate these methods (i.e., train).
  3. Become acquainted with the arts (i.e., learn a wide variety of techniques).
  4. Know the principles of all professions. (i.e., cross-disciplinary learning)
  5. Understand the harm and benefit in everything (i.e., cost-benefit analysis).
  6. Learn to see everything accurately.
  7. Become aware of what is not obvious (i.e., refine your techniques).
  8. Be careful even in small matters (i.e., details matter).
  9. Do not do anything useless.

The ultimate goal, according to Musashi, is to develop an unbiased mental framework, based on practice and repetition, that will allow you to understand the relative strengths and weaknesses of all arguments at play in a dispute:

In the science of martial arts, the state of mind should remain the same as normal … let there be no change at all – with the mind open and direct, neither tense nor lax, centering the mind so that there is no imbalance, calmly relax your mind, and savor this moment of ease thoroughly so that the relaxation does not stop its relation for even an instant.

This flexible framework and detached perspective will allow you the best strategic opportunity to reach your goals, with a robust tactical toolbox.  Perhaps more than any other risk in conflict, Musashi warns of the dangers of inflexibility:  “Fixation is the way to death, fluidity is the way to life.”