Durability Bias in Business

Durability bias in business is the tendency of people to project recent trends or occurrences into the future. If it happened in the past, then it must happen in the future. The term is often used in behavioral science and forecasting.

Durability Bias in Business

How does durability bias apply to business? Often business professionals project short term trends into the future. They believe that the recent good times will last forever, conversely, they also believe the bad times will go on indefinitely!

The stock market is a good example of durability bias in action. When the market is booming you start seeing books titled, “Dow 20,000”, hitting the bookstores. People started buying stocks and an euphoria took over. Last fall the opposite happened. Stocks started dropping and soon we were in a financial crisis.

For the past six months the stock market has gone from maximum pessimism to the beginnings of optimism. Stocks have risen 21% in the past six months and over 39% since the low on March 9th. Right now the durability bias is on the downside, however, as these gains continue the bias will shift to the upside.

So what is your durability bias telling you? Are you running your business as if the tough times are going on forever or are you investing in your people and infrastructure to take advantage of the recovery?

Durability Bias in Business

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4 Responses to Durability Bias in Business

  1. Anonymous August 21, 2009 at 2:38 pm #

    This is a well known blind spot and something we should always be checking. Objectivity and profit comes from investigating and commenting on trends that extrapolate in the opposite direction of conventional wisdom, group think, etc. I suggest reading “The Wisdom of Crowds” for some practical solutions on this problem.

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