In the field of economics and finance, I’ve encountered a number of common behaviors in many of my clients, from moderately successful ones all the way down the line to the very poorest. Cognitive biases are ways our minds fool and soothe us – to perceive pain and pleasure, effort and reward, safety and risk, and often steer us to make what are objectively the wrong decisions. Interestingly, I have seen cognitive biases more often and with a stronger hold over the person, in people of limited financial means, though this is definitely not a universal observation. But overall, if you lined people up from Richest Guy to Poorest Guy, you tend to find self-limiting cognitive biases much more often, and to a greater extent, on the poorer side of the spectrum.
This doesn’t mean that poorer people are less intelligent or capable of critical thinking. It just means that most have not been trained to do so. This website is all about helping average-earning people master their thinking and overcome their own limitations so that they can reach for the same opportunities the Rich Guys take for granted. One of the most important things we must master, however, is our own limited, biased views of the world, and we will begin to explore each of the most common biases in the coming weeks.
We will begin with the one I see most often, and definitely, is a growing problem in our tribal, polarizing, hyper-sensitive world: confirmation bias.
Confirmation bias is a cognitive bias that refers to the tendency of individuals to seek, interpret, and remember information in a way that confirms their preexisting beliefs or hypotheses. Let me make it less complicated: we tend to have pre-set worldviews and opinions and have a very difficult time accepting that we might be wrong. This bias can have significant implications in our personal and professional lives, as it can limit our ability to objectively evaluate information and make sound decisions.
Confirmation bias can manifest in a variety of ways. For example, individuals may seek out information that supports their existing beliefs, while disregarding or discounting information that contradicts those beliefs. Or, individuals may interpret ambiguous information in a way that confirms their beliefs, while ignoring alternative interpretations (economists do this all day).
One of the primary drivers of confirmation bias is our innate desire to maintain consistency in our beliefs and behaviors. According to cognitive dissonance theory, individuals experience psychological discomfort when they hold beliefs or behaviors that are inconsistent with one another. In order to alleviate this discomfort, individuals may actively seek out information that confirms their existing beliefs, while discounting or ignoring information that contradicts those beliefs.
Confirmation bias can have significant implications in a variety of contexts. In the realm of politics, for example, individuals may seek out news sources that confirm their existing political beliefs, while dismissing alternative viewpoints. This can lead to a polarization of political beliefs and a lack of understanding and empathy for individuals who hold different views.
In the workplace, confirmation bias can also have significant implications. For example, managers may have a preexisting belief that certain employees are not performing well, and may actively seek out information that confirms this belief, while ignoring evidence to the contrary. This can lead to unfair evaluations and a lack of opportunities for employees who may be performing well, but are not perceived as such due to confirmation bias.
Rich Guys seek out a variety of opinions – nothing is “gospel”. That allows them to assess the merits and deficits of each argument and often, find the solution they were seeking somewhere in the middle of a range of ideas. Very few Rich Guys are absolutists, refusing to alter and amend their views on a subject. Even things as complicated as religion, forms of government, and what is simplistically called “settled science” that so many zealots stake their identities around.
In order to combat confirmation bias, it is important to engage in critical thinking and to actively seek out information that challenges our existing beliefs. This can involve seeking out alternative viewpoints, actively seeking out information that contradicts our existing beliefs, and engaging in open-minded dialogue with individuals who hold different views.
There are easy ways to begin to do this:
- Watch one hour of news on a channel you would normally NEVER watch, for every hour of news you consume on your favorite news channel. For example, an avid CNN or MSNBC viewer should watch an hour of FoxNews or Newsmax, and vice-versa.
- Pick up a book about a public figure, or one written by a public figure, that you originally thought you hated and could find no common ground with.
- Reach out to that “friend” on social media who you vehemently disagree with, and re-follow and un-block those people whose opinions pushed you away from them. Engage them in friendly conversation. You never have to agree with them on a subject, but the issue is to HEAR and EFFECTIVELY EVALUATE opinions that are specifically contrary to yours.
- Think of people you presently dislike – one personal, one professional, and one famous – and write 3 positive attributes about each one.
- Do the same thing with three topics you have strong opinions about – abortion, gun control, taxes, whatever. Purposefully seek out a reasoned, well-written view on these subjects that is very different from you, and take in that opinion with an open mind. There ARE different ways to see the same issue, and there ARE different ways to approach the same problem. We need to accept that our way isn’t the ONLY way (or even the BEST way).
Another effective strategy for combating confirmation bias is to actively question our own assumptions and beliefs. By acknowledging the possibility that we may be wrong, we can approach information with a more open mind and be more receptive to alternative viewpoints. In my own practice, I reach a set of convictions (say, about the trajectory of the economy), but the next step is to ask, “I believe I’m right but what if I’m wrong? Is there another way to see this data? Am I letting my own biases impact my thinking?” It is critically important to find our own “blind spots”, and Rich Guys are much better at this than Average Guys.
It is also important to recognize the influence of social and cultural factors on our beliefs and biases. Our beliefs are shaped by a variety of factors, including our upbringing, socialization, and cultural context. By acknowledging the influence of these factors on our beliefs, we can be more aware of the potential for bias and more open to alternative viewpoints.
One way you can do this, I’ve already mentioned above – SEEK OUT DIFFERENT OPINIONS AND LIFESTYLES with which to interact, and learn what you can with an open mind.
In order to avoid the negative consequences of confirmation bias, it is important to approach information with an open mind and a willingness to challenge our existing beliefs. By actively seeking out information that challenges our beliefs and engaging in open-minded dialogue with individuals who hold different views, we can broaden our perspectives and make more informed decisions.
Confirmation bias is a pervasive cognitive bias that can have significant implications in our personal and professional lives, and in many cases, it is an overriding, automatic defensive mechanism most people aren’t even aware they let run their lives. Certainly, Average Guys and Poor Guys have this bias when they think, for instance, there is no way to become wealthy unless you cheat, step on others, were born into money, have racial or ethnic privileges, etc. All of those are lies, but for the Average Guy and the Poor Guy, they are comfortable ones because they don’t force you to grow beyond your current existence. They just excuse it and turn envy and resentment into virtues.
We’re not here to coddle the Poverty Mindset. We’re here to set you free from it. But the first thing you must do is release the power of your mind to see the world in new and different ways. In short, to think like a rich guy.
By acknowledging the influence of this bias and actively seeking out information that challenges our existing beliefs, we can combat the negative consequences of confirmation bias and approach information with a more open mind and a willingness to learn and grow.