We often like to see ourselves as objective observers of reality. This isn’t really how we see the world, nor is it how we describe the world to others. Alex Edmans has a book that helps us in understanding how we react to evidence.
Evidence For The Benefits/Challenges Of Sustainable Business
Alex Edmans is best known, at least to me, for his work in sustainable finance. Given this, I had assumed the book would be a deep dive into what we know about sustainable business. I.e., what evidence we have for its success and what evidence we have for its problems. The book isn’t really that. Occasionally relevant issues come up given Edman’s expertise but the book is much more general. It is a more a guide to understanding how we react to evidence. This still leaves room for the evidence-based book on sustainable business but it doesn’t mean that this isn’t a good book that belongs to a long tradition of such books, e.g., Bergstrom and West’s Calling Bullshit (here and here) and Phil Rosenzweig’s work (see here and here).
Understanding How We React To Evidence
Edmans looks at different types of information noting that they don’t all have the same weight/level of backing. Anyone can make a statement without any support. A fact is better than a mere statement, in that it is true but there are a lot of facts in the world. He notes data as the next level up in the hierarchy of proof, but even here it isn’t clear what we can take from a collection of data. Evidence is data that has been analyzed effectively to help support a position, but is far from the last word on any topic. Proof goes beyond evidence. Getting to proof is not something to expect; a single paper is very unlikely to achieve enough to ‘prove’ anything. Still, we can try and move as far along the ladder as we can. We can certainly realize that anyone can make a statement, that doesn’t make the statement a fact never mind something we can rely on to be useful in discussions outside the narrow confines of the immediate context at hand.
Confirmation Bias
A big challenge is confirmation bias. In essence, because we want to believe something we encourage ourselves to believe it. Edmans notes that this works two ways. First, we leap to get behind claims we want to be true even if the evidence for the claim is pretty weak. Second, we reject claims we don’t want to be true without giving the evidence presented a fair look.
To detect confirmation bias, ask: Do I want this statement to be true?
Edmans, 2024, page 37
If yes, be mindful of naive acceptance and ask if there are rival theories.
If no, be mindful of blinkered skepticism and take the claim seriously.
Beyond Doubt
It is hard to get to proof but that doesn’t need to prevent action. Sometimes you get the best evidence you can, recognize it isn’t perfect, and go for it.
What is more, there are some things that aren’t ever going to be shown in a study. Be wary of any study that shows that diversity, or lack of diversity, always drives financial performance. Life is messy and there are lots of contradictory results. That said, we can still act without showing a perfect link.
Most companies pursue diversity because it’s the right thing to do, not to make money. And even if there’s no link between diversity and performance, that would still support diversity initiatives as it suggests that you can increase diversity for free, without having to sacrifice profits.
Edmans, 20204, page 75
Overall, this is a helpful book. I would recommend it, especially for new graduate students, given it exhibits a useful balance. It seeks to highlight that respecting evidence is much better than just unsupported statements. Still, you should also not believe that ‘truth’ has already been shown by senior colleagues in any prior research.
For more by Alex Edmans see here and here.
Read: Alex Edmans (2024) May Contain Lies: How stories, statistics and studies exploit our biases — and what we can do about it, University of California Press