An analytics approach to debiasing asset-management decisions

An analytics approach to debiasing asset-management decisions

An analytics approach to debiasing asset-management decisions

Asset managers can find a competitive edge in debiasing techniques—accelerated with advanced analytics.

Business leaders are increasingly recognizing the risk of bias in business decision making. Insights from the fields of behavioral economics and cognitive psychology continually emerge to reveal that individuals and institutions do not base financial and other decisions on purely rational considerations. The contours of the irrational biases have become increasingly known, and the ways bias operates in our thought processes can often be predicted. Most important of all, the methods and means to counteract biases are becoming more sophisticated and effective.

By using robust advanced analytics, some investment managers have been able to measure the role played by bias in suboptimal trading decisions, connecting particular biases to particular decisions. These managers are seeking a competitive edge and—perhaps more important—to improve the value proposition of active management. Evidence from within and outside the industry strongly suggests that even the leading asset managers in top-performing funds could improve their investment performance by applying debiasing techniques.

About the author(s)

Nick Hoffman is a partner in McKinsey’s London office, where Magdalena Smith is an expert; Martin Huber is a senior partner in the Düsseldorf office.
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