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Disconfirming Evidence

A Disconfirming Figure

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The tendency to rationalize preconceived ideas and not look for disconfirming evidence.

Described in ‘Decision Traps’, by Edward Russo and Paul Schoemaker:

Most of us seem to possess a built-in tendency to favor data that support our current beliefs and to dismiss evidence that upsets them. This can lead large organizations far off-course because often a diligent search can turn up hundreds of pieces of evidence that seem to confirm a hypothesis even though the hypothesis isn’t true.

Most of us favor confirming evidence even when the search for confirming evidence has clearly become unhelpful. Confirming evidence gives us a mental reward. Every shred says: ‘You’re on the right track… You’re doing a good job.’

Disconfirming evidence, on the other hand, says: ‘Your idea wasn’t as good as you thought.’ In short, confirmation feels good and disconfirmation feels (at least momentarily) painful. Thus people tend to neglect evidence that might undermine their ideas.

Moral: Have the discipline to seek information that might disconfirm your opinions. If you look for it and can’t find it, then you have reason to be confident. One way to look for it is to generate an alternative hypothesis and test both.

The human understanding when it has once adopted an opinion draws all things else to support and agree with it. And though there be a greater number and weight of instances to be found on the other side, yet these it either neglects and despises, or else by some distinction sets aside and rejects, in order that by this great and pernicious predetermination the authority of its former conclusion may remain inviolate. — Francis Bacon

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Jakub Smrček
Jakub Smrček

Written by Jakub Smrček

Qualitative investment analysis is about understanding a business before taking out your calculator. This blog teaches you how to do it for common stocks.

Business Modeling
Business Modeling

Published in Business Modeling

Models allowing you to Read a Business Like a Book!