Confirmation Bias Can Cloud Director Judgement: Theranos is one example of how 'we hear what we want to hear and disregard the rest'.

• Author: Weber, Ralph A.

We all know the basic facts of the Theranos debacle: Brilliant Stanford dropout fools almost everyone about a blood-testing device she proclaims will revolutionize healthcare. Conscience-stricken employees reach out to investigative reporter. Theranos collapses.

While Elizabeth Holmes's name lives in infamy, it's important to note that the Theranos board included such luminaries as George Schultz, James Mattis, David Boies, Henry Kissinger and Sam Nunn. How did so many accomplished people miss that the company whose board they served on was a sham?

Theranos' was not the first--nor the last--company board that did not see what could or should have been discovered earlier. The same question has been posted about Enron, and now Boeing. It behooves all corporate board members to ask, "How do my board colleagues and I ensure we're not next?"

In their seminal 2011 bestseller, Thinking, Fast and Slow, Daniel Kahneman and Amor Tversky examined the multiple ways we commit errors in logic and reasoning. The book breaks down the differences between "fast thinking," and "slow thinking." People who rely on fast thinking like to boast that they "trust their gut;" those who predominantly use slow thinking are marked by their patience and intentional effort to see all sides of an issue before coming to a conclusion. The Theranos story is replete with examples of smart people who followed their affection for Holmes and her vision--who "fast thought"--while ignoring red flags.

Much of that can be traced to confirmation bias, a powerful mental shortcut that quietly undercuts good decision making. Because uncertainty creates discomfort, we want to eliminate it by solving problems as quickly as possible. We identify a possible answer and then look for facts to support or "confirm" that choice. Instead of being open to new evidence, confirmation bias takes over and we ignore or discount contradictory evidence as untrustworthy. As Paul Simon sings in "The Boxer," when confirmation bias is at work, "We hear what we want to hear and disregard the rest."

Confirmation bias was a huge factor time and time again in allowing Theranos's board to look the other way as evidence mounted that the company was being deceptive. Even after his own grandson blew the whistle, George Schultz's passion for Holmes's vision made him unable to let go of his belief in Theranos.

What can a board do to promote slow thinking and battle confirmation bias? Here are three ways to avoid...