As CEOs, our output is not measured by brute force. Rather we add value through our thinking. Through our decisions. Unfortunately, human brains are quite complicated, to say the least. They are massive processers receiving a constant stream of data. To become more efficient, our brains have acquired certain tendencies over the years. These tendencies help us cut through the data and make quicker decisions. Quicker decisions, but not always better decisions.
Recency Bias is the tendency of our brain to emphasize recent events. When faced with a question we will look to the recent past for an answer. We will value what happened yesterday more than what happened 3 years ago.
Confirmation Bias is our tendency to search or recall information that confirms what we already believe. When faced with a question we search for the answer which confirms our inner beliefs.
When taken together, Recency and Confirmation Bias form a powerful combo. When faced with a question or decision, our brains tend to look for the most recent information that confirms what we already believe. We do this without even thinking about it. When we find something recent, confirming what we believe, we take it as a perfect answer to our question. It holds value specifically because it reinforces both biases.
How to combat this?
Read a lot of older books. Older books have stood the test of time. They have been read and re-read and are still around. Think of the amount of writing that is produced. The number of books that have been written. The few that have stood the test of time have held their value and are worth reading. They will also give you a perspective based on history, not recency.
Consider the counterargument. Charlie Munger famously said, “I never allow myself to hold an opinion on anything that I don't know the other side's argument better than they do.” Take the time to think through both sides of an issue. Do not become tribal or indoctrinated. Through deep thought and understanding, better decisions are made.
Zoom out. We are more likely to defer to our biases when deciding for the present. Our brains are trying to help us be more efficient, to move on to the next decision. By zooming out, focusing on the big picture and long-term, I have found the need for these biases to decrease. The big picture allows us to consider a larger amount of data, thus diluting the importance of the most recent and confirming information.
Awareness. Just being aware that these biases exist can help to limit their influence. The next time you are faced with an important decision, consciously look for answers further back than the last quarter. Think through an argument that goes against your ingrained belief system.
The improvement of our thinking is where we, as CEOs, bring value to our businesses.