How Confirmation Bias Reduces Business Profits

Have you heard about “Dieselgate?” The German car giant Volkswagen acknowledged in September 2015 that it used cheating software to give false readings when i’s VW and Audi cars underwent emission tests.

The revelation shook up the car industry. It led to the resignation of CEO Martin Winterkorn, along with several other top leaders.

Volkswagen’s stock fell more than 40% over the next few days. The overall cost of the scandal to the company has been estimated at over $20 billion.

Of course, the discovery of this falsehood was inevitable. It’s similar to how the faults with Boeing’s 737 MAX would inevitably be discovered. So would Enron, WorldCom, or Tyco’s accounting fraud around the turn of the millennium.

So what’s going on here? Why do so many business leaders at top companies who are highly successful wear rose-colored glasses that prevent them from seeing obvious points of failure?

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