Self-Confirming Biased Beliefs in Organizational “Learning by Doing”

Learning by doing, a change in beliefs (and consequently behaviour) due to experience, is crucial to the adaptive behaviours of organizations as well as the individuals that inhabit them.< In this review paper, the authors summarise different pathologies of learning noted in past literature using a common underlying mechanism based on self-confirming biased beliefs. These are inaccurate beliefs about the environment that are self-confirming because acting upon these beliefs prevents their falsification. The authors provide a formal definition for self-confirming biased beliefs as an attractor that can lock learning by doing systems into suboptimal actions and provide illustrations based on simulations. The authors then compare and distinguish self-confirming biased beliefs from other related theoretical constructs, including confirmation bias, self-fulfilling prophecies, and sticking points, and underscore that self-confirming biased beliefs underlie inefficient self-confirming equilibria and hot-stove effects. Lastly, the authors highlight two fundamental ways to escape self-confirming biased beliefs: taking actions inconsistent with beliefs (i.e., exploration) and getting information on unchosen actions (i.e., counterfactuals).