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Refusing to budge: a confirmatory bias in decision making?

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Abstract

Confirmatory bias, defined as the tendency to misinterpret new pieces of evidence as confirming previously held hypotheses, can lead to implacable, even incorrect decision making. It is one of the biases, along with anchoring, framing, and other judgment heuristic errors, that may lead to non-optimal behavior. This paper tests for the existence of confirmatory bias behavior in a uniquely economic setting (tax policy) and in a context relatively lacking in ambiguity. It also tests whether the confirmatory bias phenomenon can be prevalent enough to affect aggregate outcomes, a characteristic important in economic models in particular. The results indicate not only that confirmatory bias exists, but that the confirmatory bias effect may be stronger for evidence relating to losses than for comparable evidence relating to gains.

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Notes

  1. Confirmatory bias can also refer, more broadly, to control strategies where people seek (and not just interpret) biased information when forming initial hypotheses, but that separate branch of the literature is not the focus of this study.

  2. It may be useful to think of the problem as loosely akin to a “selectivity bias” or “added-variable bias” in information processing; the idea is that sometimes people misread evidence relevant to a particular hypothesis and either misread this evidence by refusing to admit its contrary nature, thereby disregarding it as useless (selectivity bias), or people misread the evidence by processing it as supportive of previously held views even when it is not (added-variable bias). Either way, such data manipulation leads to biased estimates (both in support of the a priori hypothesis) and poor decision-making behavior.

  3. Overconfidence, a behavioral phenomenon related to confirmatory bias, has been subject to some scrutiny in the economics literature (see, for example, Ganguly et al. 2000; Madsen 1994; Camerer 1997; Camerer and Lovallo 1999; Eales et al. 1990; Dubra 2004; Hvide 2002; Golec and Tamarkin 1995; Barber and Odean 2001), but similar attention has not been paid to the confirmatory bias effect itself.

  4. While it appears that direct tests of the confirmatory bias phenomenon have yet to be published in the economics literature, it is possible to reevaluate previously published work in light of the confirmatory bias effect. For example, in an historical article documenting the pervasive extent of homestead failures in the Upper Great Plains between 1890 and 1925, Libecap and Hansen (2000) come to the conclusion that the widespread homesteading failures, which resulted in significant monetary and nonmonetary losses, were made because: “…the previous wet period and the strong claims of dryfarming experts led homesteaders to discount observations of dry weather and to place more weight on past opinions about the ability of the region to withstand droughts” (p. 28). This conclusion, while reasonable, begs the question as to why such a misreading of the available information took place. A strong case could be made that this is evidence of confirmatory bias behavior. It is quite likely that other papers in a similar vein could also be reinterpreted––and better understood––under the confirmatory bias lens.

  5. In another context, Ausubel (1991) finds that, despite consistent, unambiguous evidence of credit card debt (monthly statements), many credit card holders (47%) insist that they “nearly always” pay their balances in full (with an additional 26% claiming that they “sometimes pay” their balances in full). The fact is that three-quarters of all active credit card accounts at major banks average over $1,000 in balances at any moment in time. This belief by debt holders in their ability to pay off their credit cards every month and not incur continuous, often exorbitant finance charges, flies in the face of their (unambiguous) monthly available evidence. It can also lead them to incur further, perhaps nonoptimal, extra credit card debt.

  6. Keep in mind that the subjects are being asked to evaluate only the new evidence. They are not (initially) being asked to reevaluate their overall opinion of capital punishment. Once the new evidence is assimilated, subjects may very well then use it to update their beliefs regarding capital punishment, but it is incorrect according to the traditional neo-classical model to use prior beliefs to subjectively analyze newly available evidence.

  7. This structure conforms to the “added-variable” type of bias in informational processing mentioned in the introduction.

  8. See Rabin and Schrag (1999) for a fuller exposition of the model, including situations of possible underconfidence.

  9. Other applications have been made to management consulting (Watson et al. 1998), medical practitioners (Arkes et al. 1981) forensic evaluation (Borum et al. 1993) and prediction (Kahneman and Tversky 1973). Cutting closer to home, Cross (1977) has found that 94% of college professors (drawn from a wide distribution of disciplines) say they do above average work. An informal survey of economic professors at the 2004 AEA conference found similar ability overconfidence levels, as well as a professed readiness to bet real money on those beliefs.

  10. Preston and Harris (1965) found significant overconfidence regarding driver ability from respondents surveyed in a hospital just after a bad car accident.

  11. This implies, notably, that learning and experience will not automatically correct an agent’s misperceived beliefs. As Baumann et al. (1991) note, agents must first perceive a need for change in order for learning and experience to effect change, and confirmatory bias implies that actors do not perceive anything wrong with their biasedly confident decision making.

  12. In a similar vein, overconfidence may be used not just to fool ourselves into being happier, more productive individuals, overconfidence may sometimes even be used to fool others. As an example, an overconfidence in one’s defensive abilities may lead to challenges of a much more powerful enemy. Such hubris, rather than leading to defeat, may actually cause the rival to question herself and ultimately back down without a fight, thereby handing the victory to the less able, but overconfident, aggressor. The author thanks Rob Fleck for pointing out this natural selection application of the overconfidence effect.

  13. The data from the two survey periods were combined to form a single comprehensive data set for use in all future data analysis, after first confirming through statistical analysis (an insignificant dummy variable proxying for the two sections) that the data were formally consistent.

  14. In order to reduce survey bias, the order of the answer choices among the questions and among the respondents was mixed; half the subjects received answer choices moving from “greatly helped…” or “greatly weaken…” vertically down the page to “greatly hurt…” or “greatly strengthen…” while the other half of the respondents received surveys with the answer choices moving in the other direction.

  15. If we can assume that this subject pool is representative of the entire Montana State University student body, then this revealed proclivity is not surprising; a majority of MSU students are Montana natives, and Montana historically has been a Republican-leaning state.

  16. The separate sections of the survey were clearly delineated in bold as “Part I,” “Part II,” etc., and presented on separate pages of the survey booklet in order to reduce, as much as possible, potential order effects between the questions. This method was suggested in Dillman (2000).

  17. This is the point at which it is correct to use the new evidence to update prior beliefs, but only, of course, if that new evidence was first analyzed objectively and independently.

  18. Even models that allow for an altruism component of voting behavior (Nelson 1994), never suggest that this component is strong enough to overwhelm the objective of maximization of real income, although, altruism may dampen it.

  19. An alternative interpretation of subjects’ response may be related to ideology’s commitment enhancing role in settings of uncertainty (Downs 1957), but that explanation lacks teeth as there is little uncertainty in this particular setting, which is the point. The relatively unambiguous survey evidence makes it directly clear to subjects how these policy proposals will affect their ultimate tax returns. Put another way, there are two types of uncertainty which may affect actors’ behavior: uncertainty with the datum and uncertainty of preferences. As in most of economics, this paper assumes away uncertainty of preferences. That leaves only uncertainty in the data which the survey evidence was explicitly designed to avoid.

  20. The author thanks an anonymous reviewer for pointing out that the more linear relationship observed in the Survey A graph, as opposed to the Survey B graph, may be due to a ceiling effect.

  21. This is not necessarily true for confirmatory bias stemming from control strategies, such as with Wason’s 2–4–6 and other selection tasks, where strongly held beliefs are not required for biased hypothesis updating.

  22. Note that 84 observations in Survey A and 73 observations in Survey B, or 60 and 54% of the total sample sizes respectively, fit into the two tails of the normal distributions of responses from both surveys.

  23. Another way of making the same point is that {Support, Favor} and {Opposition, Against} correspond to the added-variable interpretation of confirmatory bias behavior, while {Support, Neutral} and {Opposition, Neutral} relate to the selectivity bias interpretation of confirmatory bias behavior.

  24. This author believes that, had the survey evidence been of the more traditional ambiguous kind, the results in the final row of Survey A would have exhibited a stronger Against column response, and a less strong Neutral column response. It is easier to misread conflicting evidence as supportive of your initial hypothesis if it is somewhat ambiguous; if it is not ambiguous, the best you can do while still maintaining your initial beliefs is to disregard the new information.

  25. These results from Survey A and Survey B are both normally distributed as well.

  26. Akerlof (1989), in an insightful paper on voting behavior, considers a similar setting when he models decision-making behavior subject to an “illusion” bias. He finds, as we do, that while “it is usually assumed that individuals vote in their own best interest…this best interest may be neither obvious nor pleasant to contemplate…the desire and ability for self-delusion can lead to poor social decisions.” (p. 10, italics added).

  27. Common Data Set, online at: http://www.commondataset.org/ (The Office of Planning and Analysis, Montana State University-Bozeman 2003).

  28. A somewhat different interpretation, suggested to the author by Ken Troske, is that conservatives (who tend to support Bush tax policies) are more politically ideological than liberals (who tend not to support Bush tax policy). This difference in political ideological degree may be the driving factor behind the nonsymmetric results, rather than that of prospect theory and varying preferences for gains versus losses. From the survey data collected it is impossible to be certain which interpretation is correct, but either way, both interpretations support the assumption that order effects are not driving the results; they merely offer different explanations for the motivation behind the confirmatory bias effect.

  29. An anonymous reviewer also suggested that the nonsymmetric results may be due to a framing effect whereby people “support cuts” more than they “oppose increases” (somewhat similar to the asymmetry of information it takes to confirm versus falsify hypotheses (Trope and Thompson 1997; Cameron and Trope 2004)). While we can not rule out this interpretation entirely either, we believe it unlikely to be the complete explanation for our results, or more than 62% of those initially predisposed against Bush Administration tax policy would have more positively “supported” the tax cuts.

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Acknowledgments

Many special thanks to Rob Fleck, Dino Falaschetti, Susan Feigenbaum, Scott Plous, Ron Harstad, David Mandy, Jeff Milyo, Ken Troske, and two anonymous reviewers for their insight, criticism, support, and advice.

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Correspondence to Lea-Rachel D. Kosnik.

Appendix 1: Survey questions

Appendix 1: Survey questions

1.1 Part I: Initial predisposition

  1. Q1

    To what extent do you think the tax cuts which Congress passed and George W. Bush signed into law during this past presidential term have affected the US economy?

    • greatly helped the US economy

    • somewhat helped the US economy

    • had no effect on the US economy

    • somewhat hurt the US economy

    • greatly hurt the US economy

  2. Q2

    In the long run do you think tax cuts strengthen or weaken the economy?

    • greatly weaken the economy

    • somewhat weaken the economy

    • have no effect on the economy

    • somewhat strengthen the economy

    • greatly strengthen the economy

  3. Q3

    In recent years, President Bush and Congress have made major cuts in federal income tax rates. What is your opinion regarding this tax agenda?

    • strongly approve

    • somewhat approve

    • have no opinion

    • somewhat disapprove

    • strongly disapprove

  4. Q4

    Just your opinion: What do you think about the size of President Bush’s tax cuts? Should they have been:

    • much smaller than they were

    • somewhat smaller than they were

    • about the same as they were

    • somewhat bigger than they were

    • much bigger than they were

1.2 Part II: Evidence assimilation

1.2.1 Survey A:

President Bush is due to propose to Congress, within the next month, an additional tax cut to be effective for the 2004 tax year. This tax cut takes the form of an extension to the HOPE scholarship Credit. Currently the HOPE Scholarship Credit is an income tax credit for students in the first two years of college (or other eligible post-secondary training), which allows them to credit their tax returns up to 100% of the first $1,000 of tuition and fees and 50% of the second $1,000 (the amounts are indexed for inflation after 2001). The credit is available on a per-student basis for net tuition and fees (less grant aid) paid for college enrollment after 31 December 1997.

The proposal President Bush is presenting to Congress next month extends the benefits and terms of this credit. It will be available for up to four years of college (instead of just the first two), and the amount of tuition and fees available for credit will be raised to 100% of the first $2,000 of tuition and fees and 50% of the second $2,000 (the amounts are still indexed for inflation). Note that other education and learning credits––such as the Lifetime Learning Credit––will not be affected in any way. If you are a current college student, therefore, you will unambiguously benefit from this proposal.

1.2.2 Survey B:

President Bush is due to propose to Congress, within the next month, a tax increase to be effective for the 2004 tax year. This tax increase takes the form of a reduction of the HOPE scholarship credit. Currently the HOPE Scholarship Credit is an income tax credit for students in the first 2 years of college (or other eligible post-secondary training), which allows them to credit their tax returns up to 100% of the first $1,000 of tuition and fees and 50% of the second $1,000 (the amounts are indexed for inflation after 2001). The credit is available on a per-student basis for net tuition and fees (less grant aid) paid for college enrollment after 31 December 1997.

The proposal President Bush is presenting to Congress next month reduces the benefits and terms of this credit. It will only be available for the first year of college (instead of the first two years as before), and the amount of tuition and fees available for credit will be reduced to 50% of the first $1,000 of tuition and fees and 25% of the second $1,000 (the amounts are still indexed for inflation). Note that other education and learning credits––such as the Lifetime Learning Credit––will not be affected in any way. If you are a current college student, therefore, you will unambiguously lose from this proposal.

  1. Q5

    The HOPE Scholarship Credit is an income tax credit for:

    • employee moving expenses

    • college tuition and fees expenses

    • on the job training expenses

    • medical expenses

  2. Q6

    The proposed amendment to the HOPE Scholarship Credit, if passed, would take effect:

    • retroactively back to tax year 1997

    • in tax year 2010

    • in tax year 2007

    • in tax year 2004

  3. Q7

    The proposed amendment to the HOPE Scholarship Credit includes increasing (decreasing) the number of years college students are eligible to claim this credit from two to:

    • one

    • six

    • four

    • three

  4. Q8

    Please indicate your support or opposition for this latest tax proposal:

    • strongly support

    • somewhat support

    • have no opinion

    • somewhat oppose

    • strongly oppose

1.3 Part III: Attitude polarization

  1. Q9

    After reading and thinking about the new proposed tax amendment, which of the following statements comes closest to your point of view?

    • I now have much greater faith in President Bush’s tax agenda

    • I now have greater faith in President Bush’s tax agenda

    • I now have less faith in President Bush’s tax agenda

    • I now have much less faith in President Bush’s tax agenda

    • My opinion has not changed

  2. Q10

    After reading and thinking about the new proposed tax amendment, which of the following statements comes closest to your point of view?

    • I am much less inclined to support President Bush’s tax agenda

    • I am somewhat less inclined to support President Bush’s tax agenda

    • I am somewhat more inclined to support President Bush’s tax agenda

    • I am much more inclined to support President Bush’s tax agenda

    • My opinion has not changed

  3. Q11

    After reading and thinking about the new proposed tax amendment, which of the following statements comes closest to your point of view?

    • I see passage of all of President Bush’s income tax proposals much more likely

    • I see passage of all of President Bush’s income tax proposals somewhat more likely

    • I see passage of all of President Bush’s income tax proposals somewhat less likely

    • I see passage of all of President Bush’s income tax proposals much less likely

    • My opinion has not changed

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Kosnik, LR.D. Refusing to budge: a confirmatory bias in decision making?. Mind Soc 7, 193–214 (2008). https://doi.org/10.1007/s11299-007-0043-5

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