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Building Consensus: Addressing Behavioral Biases


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Everyone has biases—and that includes the members of family office investment committees.

Everyone is also likely to approach decisions through the lens of their own inherent propensities, based largely on prior business, personal or investment experiences, as well as their own decision-making style. And, for better or worse, these dynamics can have an impact on the committee’s overall performance.

To boost the investment committee’s effectiveness, head off unnecessary conflict, and build consensus, family offices should recognize the inevitable prevalence of behavioral bias and differing decision-making styles among members—and take steps to address them by encouraging a candid discussion of the issues. The following steps can help.

Understanding behavioral biases and decision-making styles

Behavioral biases are shortcuts in thinking that occur when we process information that fits patterns we have identified previously. The problem is that those patterns do not always accurately reflect the current situation. If we fail to recognize and examine the assumptions underlying these shortcuts, the quality of our decision-making can suffer.

While many such biases have been identified by psychologists and behavioral economists, family office members are particularly likely to exhibit the following biases:

  • Loss aversion. The concept of loss aversion is based on the idea that people typically experience the pain from losses more acutely than the satisfaction related to gains. As a result, some individuals tend to prioritize decisions that avoid losses over those that might produce a similar-sized gain.1
  • Anchoring bias describes the tendency in which people rely too much on the first information they receive about a topic, with that intelligence serving as the filter — or an anchor — for all subsequent decisions.2
  • Confirmation bias is the tendency to give more credence than warranted to information that matches our existing beliefs.3

As you consider individual committee members, try to identify the role these biases may play in their decision making.

To develop a fuller understanding of everyone’s approach, you can also consider the way they make decisions in the first place. For example, Rowe & Boulgaride’s Decision Style Theory identifies four distinct decision-making styles4:

  • Directive, in which an individual bases a decision on information they already have without looking for additional input
  • Analytical, which involves considering all available data before making a decision
  • Conceptual, adopting a big-picture approach
  • Behavioral, which focuses on reaching a group consensus

In addition, many groups have one person who is the de facto decision maker. Be sure you are clear on who that individual is and consider the interpersonal dynamics that contribute to their influence.

Encourage candid communication to build consensus

Use the information you have gathered to develop a picture or “heat map” of the potential inclinations each committee member is likely to bring to the table. You might also ask committee members to assess their own behavior, thus identifying their biases and decision-making styles.

Your findings will determine next steps. You might begin by sharing them with the family office’s principals as part of a discussion of their possible impact on portfolio management and performance.

Depending on the team’s needs, you might decide to engage a trusted partner to design a training session that targets investors’ most common biases, or that covers communication styles and group decision-making issues. Such a session can help create a common language and shared understanding of the phenomena at play in the committee’s decision-making.

Use your conclusions to refine the investment decision-making process

You should also integrate lessons learned about behavioral bias and decision-making styles into the investment process. That means examining the reasoning — the how and the why — behind decisions. In addition, encourage the committee to focus on investment fundamentals and carefully weigh matters of risk and return for each option. It is also worth reminding the group that the committee as whole has a responsibility to follow the goals set out in its investment policy statement. Reinforce this obligation by comparing investment ideas with stated policy to ensure alignment.

Ultimately, successfully building consensus among committee members who bring inherent biases and decision-making styles to the table requires building awareness of these issues within the family office team, as well as among committee members themselves. Re-orienting investment committees toward the reality of their roles and responsibilities can help align differing perspectives, so that biases and other factors take a back seat to well-considered recommendations.

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1. Kahneman, D. & Tversky, A. (1979). "Prospect Theory: An Analysis of Decision under Risk." Econometrica

2. Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185(4157), 1124–1131.

3. Wason, PC. (1960). On the failure to eliminate hypotheses in a conceptual task. Quarterly Journal of Experimental Psychology, 12, 129–140. 10.1080/17470216008416717

4. Rowe, A. J., & Boulgarides, J. D. (1992). Managerial decision making. New York: Macmillan Publishing Company.


This information is not intended to be and should not be treated as legal, investment, accounting or tax advice and is for informational purposes only. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel.  All information discussed herein is current only as of the date appearing in this material and is subject to change at any time without notice.

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