Cognitive Bias and Why You Shouldn’t (According to Michael Lewis) Invest in Tall White Guys

Last week I saw Michael Lewis (author of Moneyball, The Big Short, Liar’s Poker, etc) speak at the San Francisco City Arts and Lectures Series. The discussion focused on his recent book The Undoing Project, which details the groundbreaking professional collaboration and decades-long friendship of the Israeli psychologists Danny Kahneman and Amos Tverski.

Kahneman’s and Tverski’s work on cognitive bias (for which Kahneman won a Nobel Prize and Tverski a MacArthur genius grant) demonstrated that near-universal baked-in biases consistently lead humans to make predictable types of irrational decisions when faced with uncertainty. The pair’s discoveries have been hugely influential, laying the groundwork for new fields of study like behavioral economics.

Near the end of the evening an audience member asked Lewis if he’d made any changes in his own life based on what he’d learned from Kahneman and Tverski, to which Lewis replied (and I’m paraphrasing here) “I don’t invest in tall white guys.”

Lewis’ point here wasn’t really about tall white guys (like himself… and me) but about the irrational biases we all generally tend to exhibit when making choices about other people. His argument is that when choosing a person for a job or anything else, we tend to favor people who “look the part”. You might say we give bonus points to people who match up with our preconceived notions of what we expect them to look like.

This type of cognitive, often subconscious, bias has been shown to consistently affect decision-making in professional settings. For example, it’s been demonstrated that recruiters are on average less likely to select a resumé from a candidate with “black-sounding” name than the identical resumé with a “white-sounding” name.

Malcolm Gladwell (about whom my nerdy friends looove to roll their eyes with smug superiority) has pointed out that only 14.5 percent of men are six feet tall or above, yet among Fortune 500 CEOs that number is 58 percent. Why might that be? Are tall white guys really better at running companies? Or do they sometimes rise to the top at least in part because they match up with what their bosses’ expectation of what a rising business star “ought to” look like?

So how does Michael Lewis recommend we short-circuit our own biases? He says we ought to choose people (whether employees, doctors, etc) who explicitly don’t look like what we’d expect — the idea being that for a person to get to a high level of success without the benefit of any “looking-the-part bonus points” they’re likely to actually be extremely qualified.

Lewis’ mechanism for reducing his own bias isn’t flawless, since it might lead him to dismiss the best candidate who also happens to look the part. But nonetheless I find his effort to mitigate the effects of his biases admirable.

It’s possible for whole industries to uncover baked-in biases and put mechanisms in place to reduce their effects. For example, professional symphonies now tend to hold “blind auditions” where candidates try out behind a screen so that the selection committee isn’t biased by appearance, gender, race, etc.

This idea got me thinking about how we in tech and VC might mitigate the effects of our own cognitive biases. I’m not sure early-stage VC is particularly well-suited to a blind audition type model since so much of the diligence process focuses on getting to know founders personally. But that doesn’t mean there aren’t ways to reduce bias in venture. Perhaps a first step is simply bringing more mindfulness to how we assess founders and the biases that may cloud our judgement.

I want to think harder about how to reduce cognitive bias in my own evaluation of founders and companies — both because I believe we ought to build a merit-based system, and also (selfishly) because I want to invest in the best people, which is difficult under the influence of irrational biases. I’d love to hear any ideas on how to do this in the comments!

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P.S. I just finished The Undoing Project. I enjoyed it, though I tend to like everything Lewis writes. The Kahneman-Tverski relationship aspect of the book might be more interesting to you than the cognitive bias mechanics, particularly if you’ve already taken some intro Psych courses or read books like Thinking Fast and Slow by Kahneman. The book wasn’t quite on par with Liars Poker or The Big Short, but definitely a good read if you like Lewis’ stuff.

Investor @GreatPointVC. Make No Little Plans.