​Investment - Bias Recognition and Mitigation

​Investment - Bias Recognition and Mitigation 
Devise an internal communication plan that not only informs employees of inclusion initiatives but also engages and promotes input. Conduct internal marketing, making use of microsites, blogs, posters, and internal DEI champions. 
 Recognition and Mitigation
Recognising Biases

A typical counterargument to workplace DEI is, ‘if someone has the ability, they will obtain the job’.

This argument relies on employment being granted on merit, the assumption being that recruitment processes are fair and free from bias and discrimination. Therefore, if someone from a minority group fails to secure a job, they did not have the ability.

The concept that the best person will receive the job assumes there is a level playing field, and that if someone fails to achieve in life it is completely their fault. Michael Sandel criticizes this assumption in his book, The Tyranny of Merit.1 He shows evidence that even educational accomplishment is tied to socioeconomic background – for example, two-thirds of Harvard students are from the top fifth of the US income scale. 

Even where you have comparably qualified, skilled applicants, biases might lead to vastly different outcomes. These biases may be conscious or unconscious — that is, purposeful or unintentional. Another, lesser-known aspect is something psychologist, author, and Nobel Prize–winner in economics, Daniel Kahneman, characterizes as ‘noise’. 

Noise refers to external variables that lead to uneven decision making. External influences can include, for example, the time of day someone conducts a job interview, which is also a form of prejudice that can lead to inconsistent decision making.

1 Michael J. Sandel, The Tyranny of Merit: What’s Become of the Common Good (New York: Farrar, Straus and Giroux, 2020).

Bias and Behaviour
Bias is a set of assumptions and stereotypes that people have regarding those different from themselves. Biases are built up by the effects of individuals around them and can include their background, the media they consume, and their network of friends and acquaintances. Biases can be both positive and bad, such as expecting that persons from specific backgrounds will be better at arithmetic or that a person from a less prestigious university will be less capable.  

Bias Is Unavoidable and Human
The amount of information that humans are bombarded with every day is impossible for our conscious brain to cope with, and so, our unconscious brain makes the majority of our daily decisions. In Daniel Kahneman’s book, Thinking, Fast and Slow,2 he discusses System 1 and System 2 thinking. System 1 refers to the quick unconscious decisions that we make, whereas System 2 thinking involves purposeful decisions. According to his studies, more than 90% of our decisions are based on System 1 thinking.  

This technique works well for ordinary daily chores, but how does it effect decision making for crucial tasks? Going back to the hiring practices described above, we find that System 1 thinking can permit unconscious stereotypes and prejudices stored in our brain generate decisions that are contradictory to the ideals of fairness and equity.

Bias Translates into Behaviour
Although mentally we may feel that we are inclusive and embrace the idea of meritocracy, in our daily lives, a considerable percentage of our action will be based on unconscious thinking. A male executive may believe that they favor equality of opportunity and more women getting into senior level roles, but in their dealings with female executives, much of their behaviour may be based on their unconscious biases. If, for example, they had a traditional upbringing in which women in the family performed traditional duties of caregiving and managing the home, it may alter their expectations of female executives and how females should behave in the office.   

Bias Affects Performance
Bias can create an environment in which groups adversely categorized by management are perceived to perform poorly because they present differently. This attitude is typically the cumulative consequence of the expectations of specific groups held by senior management, and so, those groups could become isolated and ignored and not receive as much management support or recognition. Even tiny mistakes by members of these groups could be exaggerated in the perspective of management, which may result in a self-fulfilling prophesy of bad performance. 

INDIVIDUAL
Most diversity projects concentrate at the individual level with the aim of changing attitudes and conduct. Diversity training is the most typical approach at creating inclusiveness. But the media is replete with reports on the ineffectiveness of diversity training, citing substantial study on the subject.

The problem is that training is often being carried out in a vacuum – that is, with no correlation with business objectives. Attitudes and behaviour of individuals may be changed by attending a training session, but if they do not receive support from their supervisors and peers, they may revert to their unconscious biases and related behaviours.  

GROUP/TEAM
At the group/team level, insider–outsider dynamics truly come into play. The influence of unconscious prejudice, which perpetuates stereotypes, can be large and destructive because it impacts an entire community of people.  

If the executive team, for example, predominantly consists of men, then typical male qualities may be perceived as being perfect for leadership. In this circumstance, women coming into the executive team may find it challenging to make an influence.  

ORGANISATION

Stereotypes and bigotry truly become established at the organisation level.  

The insider groups at the top of the hierarchy affect policies and processes as well as the unwritten rules, habits, and traditions. These can have unconscious and inadvertent bias built in.  



The impact of bias in leadership roles can become institutionalised and apparent in policies, practices, and systems, frequently referred to as systemic bias. Some forms of bias may be advantageous, such as an investing firm being risk adverse in its investment decisions, which may serve its investors well during market volatility or economic turmoil. 

While some forms of bias serve a business well, there are other sorts of bias, such as in recruiting or promotion, that can promote prejudice and block talented people from acquiring employment or growing in their career.


MARKETPLACE
A crucial force for change in a linked, globalised society is at the marketplace level.  

Does a company’s brand represent the diversity of its consumer base? Is there a gap between the varied picture portrayed in ads and other promotional material and the real make-up of the organisation? Is the organization able to engage a varied consumer in an inclusive manner?  


An corporate culture that comes from unconscious bias will come over in client

How Bias Can Affect Investment Decisions
Bias not only influences decisions we make about other people, but it also affects other critical elements of our lives, such as how we manage our finances and even how we invest money. Behavioural finance is the study of the role human psychology plays in the way people invest and its impact on financial markets. This contrasts with standard economic and financial theory, in which there is an assumption that investors are rational and make judgments based on an analysis of all available evidence. All investors, from amateurs to seasoned money managers, have the ability to act impulsively.

Irrational behaviour in this context involves departing from proven analytical techniques and objective decision making. Some of this unreasonable behaviour is based on personal biases. As with any sort of bias, these can be altered by group conduct. Studies within this sector have revealed many types of prejudice that are widespread among investors. 

Overconfidence in Forecasting Skills
People displaying unwarranted faith in their own intuitive thinking, judgements, and/or cognitive ability. This bias can lead to hazardous activity, such as persons assuming they can dependably forecast how financial markets would behave.

Confirmation Bias
When a person has an initial theory and is then obsessed on any data that confirms their belief, ignoring other data which may invalidate the hypothesis. 

Availability Bias Individuals giving undue weight to easily accessible information rather than carrying out comprehensive investigation and analysis that may challenge readily available data. 

Illusion of Control
Similar to overconfidence, individuals assume they can control uncertain outcomes, such as corporate success or stock price behaviour

Self-Attribution Bias
People take credit for triumphs while blaming failures on external factors. This behaviour may be an attempt to preserve one’s self-esteem, while insulating oneself from taking personal responsibility for failures.

Hindsight Bias
Another protection strategy when, rather than conceding that their projections were not as accurate as they expected, individuals claim to have ‘known it all along’.

Biases in all their manifestations are ultimately a manifestation of human psychology that can create unreasonable action.


As much as prejudices can affect workplace and team dynamics, they can also impair investor–client relationships and reduce the effectiveness of investment teams. Firms that address workplace bias and effectively build an inclusive working environment will benefit from a workforce that has a strong sense of belonging. This will lead to greater levels of morale and dedication and help eliminate investment bias by permitting strong, yet respectful, debate. 

Mitigating Biases


Variables like bias can lead to unjust decisions being made in all facets of the employee experience. The significance of DEI is that it adds challenge into processes. DEI training enables individuals to take a step back to look at whether their decisions and the decision-making process were fair and transparent.

Building in supervision and examination into decision-making processes ensures a fairer conclusion. Even where there are fair and open processes in place, extraneous variables, such as time constraint, might lead to circumvention. If there is comprehensive and consistent scrutiny of decisions, bypassing protocols is less likely to happen. 

" " Consistently following an inclusive strategy leads to behaviour change as the approach becomes part of organizational culture. 

Can People Become De-Biased?


The objective of unconscious bias training is to make attendees aware of biases and assist them accept and realize that they and everyone else have biases. The theory is that if people comprehend the notion of bias and acknowledge their own prejudices, this heightened awareness would lead to less prejudiced decision making.

" " Single training sessions without ongoing coaching, however, are unlikely to lead to any good or long-lasting behavioural change. Despite unconscious prejudice being innate in all of us, there are steps that businesses may take to lessen its impact:

Help individuals acknowledge the idea that they and everyone else have biases, and that it has an impact on their decision making and behaviours.


Individuals should become aware of their prejudices by intentionally thinking about views that they hold about others different from themselves. Writing things down and establishing a list to which they can refer can be beneficial.


Interact often with people different from yourself.


Utilise 360 feedback systems as part of performance review, in which a varied set of colleagues can remark on performance.


Develop cross-cultural awareness through literature and training.

Addressing Workplace Bias

A proven strategy to avoid bias from impacting judgments is to build in safeguards, oversight, and examination to interrupt biased behaviour. As an example, just establishing a policy stating hiring managers need to conduct interviews of job applicants as a panel would not contribute to inclusion unless there are measures to assure adherence to agreed-on policies. Safeguards include requiring recruiting managers to confirm who will be the panel members for all rounds of interviews, sending interview notes to HR, and following objective and consistent criteria. Additionally, the talent acquisition unit should perform frequent random audits of the hiring process and interviewees to guarantee compliance.

Assess the organisation’s culture in connection to DEI through surveys, focus groups, and one-to-one interviews.

Review policies, processes, and systems and analyse customer and marketplace data. 

Adopt a top-down strategy. Form a diversity council chaired by the CEO or other senior leaders to design a plan and oversee DEI activities. The council should include of top officials from major revenue-generating departments, not merely the human resources department. 

Produce DEI metrics with both quantitative and qualitative indicators.

As part of the broader approach, provide diversity-awareness training looking at unconscious prejudice and techniques for recognizing individual fears surrounding dealing with persons from under-represented groups.

Assess the impact of DEI programmes. Review data on the achievement of targets set in diversity measures. Assess what has and what has not worked. Identify follow-up actions.

Over time, new behaviours will get embedded, and that is when actual behavioural change will happen.  

Individuals can limit the influence of their personal prejudices simply by ensuring they follow processes, and, over time, it becomes a part of business as usual.  

As an example, when a manager has to recruit a new team member either owing to business development or an existing employee departing, they are under a time pressure. It is customary in such cases to go with the safest alternative in the manager’s judgment, which means the decision is impacted by the manager’s personal biases. If the manager works in an organisation where there is strong scrutiny of recruitment decisions, following a fair and transparent process becomes internalised by management.