Do You Know What Information to Trust?

Business leaders face a dizzying array of challenges, with artificial intelligence and ESG issues now responsibilities of the C-suite. But they have a formidable weapon—information. Academic papers are increasingly open-access, consultancies release studies sharing their trade secrets, and business magazines make findings accessible in bite-sized chunks.

But how do we know what information to trust? Confirmation bias refers to the fact that what people share—and thus what we see in our news feeds—is what they want to be true, rather than what’s actually true. In May Contain Lies, I develop the Ladder of Misinference, which highlights the missteps we make when interpreting information.

The first mistake is that a statement is not a fact, because it may not be accurate. Take the famous claim that “culture eats strategy for breakfast.” It’s widely quoted as the gospel truth because it’s attributed to management guru Peter Drucker. But Drucker never actually said anything of the sort. And even if he did, it’s just one person’s subjective opinion unless a rigorous study is conducted to demonstrate it. We often quote the most black-and-white statements, but their extremity masks the fact that there may be an insubstantial foundation beneath the house.

A second problem is that a fact is not data because it may not be representative. We love to learn from success stories—but even if they’re 100 percent accurate, they’re misleading as they may be cherry-picked, the exceptions that don’t prove the rule. Take Simon Sinek’s claim that “Start with why” is the road to riches. He uses Apple, Martin Luther King, Jr., and the Wright Brothers as examples. But there could be hundreds of others who started with why and failed—Sinek never mentions them. To properly make that claim, he’d need to consider hundreds of companies that started with why, both those that succeeded and those that failed, and compare them to a control group that didn’t start with why. You can’t identify what drove success unless you also study failure.

The third warning is that data is not evidence, because it may not be conclusive. You might think that the antidote to anecdotes is to use tons of data. But data is merely a set of facts that can be consistent with multiple explanations. Evidence is a set of facts that supports a single conclusion—just as evidence in a criminal trial is only meaningful if it pinpoints a single suspect.

Several studies claim that sustainability improves performance—which I’d love to be true as much of my work is on the benefits of sustainability. But all they do is find a correlation between sustainability and performance. It could be driven by reverse causality: Profits allow a company to invest in sustainability, rather than sustainability boosting profits. Or there might be common causes: A great CEO improves both sustainability and performance. We all know that “correlation does not imply causation,” but we forget this when we like the result being paraded.

So how does a busy executive, who doesn’t have the time to look up every footnote, remain on their guard? If you see a result that you’re raring to accept, imagine it was the opposite and ask how you’d knock it down. If research found that sustainable companies did worse, you might appeal to common causes: A bad CEO delivers low profits, and a bad CEO also invests in pie-in-the-sky sustainability projects rather than focusing on the core business. Now that you’ve alerted yourself to the role of CEO quality, ask if it might be an alternative explanation for the original claim, the one you want to accept. To combat confirmation bias, we need to apply the same discernment to a finding we like as to one we don’t.

Alex Edmans is professor of finance at London Business School. He has spoken at the World Economic Forum in Davos and given the TED talk “What to Trust in a Post-Truth World” and the TEDx talks “The Pie-Growing Mindset” and “The Social Responsibility of Business.” He serves as nonexecutive director of the Investor Forum and on the World Economic Forum’s Global Future Council on Responsible Investing. He is the author of Grow the Pie: How Great Companies Deliver Both Purpose and Profit, a Financial Times Book of the Year, and May Contain Lies: How Stories, Statistics, and Studies Exploit Our Biases—And What We Can Do About It, published this year.