Academic research shows that mindfulness reduces cognitive bias – as we have observed for years.
By Chris Woodcock
Chris Woodcock leads the research and product teams for Essentia Analytics. Prior to joining Essentia, Chris was a technology analyst at GAM Investment Management and a hedge fund analyst at GAM Multi Manager in London. Before his career in financial services, Chris was a professional footballer with Newcastle United.
We are lucky enough to have several talented academics on our staff and advisory board at Essentia, and one of them, Philip Maymin, an Essentia Insight Partner and analytics professor at Fairfield University, recently published a fascinating paper on the effects of mindfulness on decision outcomes in the Nature specialty journal on Humanities and Social Sciences Communications.
In the paper, entitled Cognitive Biases and Mindfulness, the researchers replicate a couple dozen standard tests of cognitive biases, such as anchoring, overconfidence, mental accounting, loss aversion, and the endowment effect – but with one wrinkle: some of the subjects are induced to be mindful before they do the tests. What they found was that those participants who were in a mindful state answered almost all of the test questions in a more rational manner than those who weren’t.
In other words, mindfulness reduces cognitive biases.
What is mindfulness? Though it is often confused with meditation or being considerate, it actually has nothing to do with either one. Mindfulness, as defined by Maymin’s co-author and “mother of mindfulness” Ellen Langer of Harvard University, is the simple process of noticing new things. When we notice new things, we become aware of what we don’t know, we become comfortable with uncertainty, and we come to recognize multiple perspectives.
In Langer’s research, she has found that mindfulness increases health and longevity, reduces stress, improves vision, creativity, self-esteem, and a whole host of other benefits. This latest paper shows that mindfulness makes us more “rational” in a variety of contexts.
From “Cognitive Biases and Mindfulness”: Maymin’s and Langer’s research found that “warming up” with simple thought exercises demonstrably mitigated behavioral biases in the subjects they studied.
How is mindfulness induced? The amazing thing is it has nothing to do with the cognitive biases. Rather, it’s a few fun and simple exercises such as spotting the difference between two photos, looking at some optical illusions, and literally looking around and noticing three new things in your environment that you had never noticed before. When you do this, their research shows, you’re less likely to succumb to the cognitive biases that our own research demonstrates can be so costly to investors.
In fact, I can’t help but see the connection between these simple exercises and another routine that takes almost no time or effort but provides massive benefits – an Essentia nudge!
(Nudges, you may know, are a core part of our Insight service, which helps portfolio managers mitigate their biases and make better decisions. We have found that prompting a portfolio manager to step back for just a moment and think — dare I say mindfully — about a decision, at the time they need to make it, results in measurably better decision-making. This new research by Maymin and Langer substantiates something we have observed with our clients for years.)
Maymin’s and Langer’s full paper is available for download from the Nature/Humanities and Social Sciences Communications website, and you can also view a replay of Maymin’s recent webinar on bias mitigation, where he discusses this paper. And for more on how Essentia puts this principle into practice with clients, read about our Nudges here.
