Two Sides of Ambivalence

The Hidden Brain podcast probes “the unconscious patterns that drive human behavior, shape our choices, and direct our relationships.”  An episode, “The Benefits of Mixed Emotions,” features Naomi Rothman, who “explores how ambivalence changes the way we think and how it changes the way others see us.”

As noted in an earlier posting, an attitude of confidence about one’s ideas is much prized in the investment world.  That easily spills into overconfidence, which we can define as a level of confidence that is unwarranted by the balance of information that is available.  Displaying ambivalence is generally a no-no.

A penalty for ambivalence

Rothman says that “people tend to have negative perceptions of those who are ambivalent, those who are expressing that they feel tension and conflict about something.”  In some studies, doctors who admit that they are weighing two possible diagnoses “were rated as more indecisive, as less well informed, as lower in job performance — and people were less likely to say that they would follow their advice.”

It’s not a great leap to see that similar factors are at play in other realms of expertise.

In fact, research shows that “leaders who show their ambivalence in earnings calls — CEOs, CFOs — receive more skepticism from the analysts and the marketplace.”  They face a “scrutiny penalty” (which on average is larger for women executives).

Skepticism of those who display ambivalence is the default reaction in most corners of the investment ecosystem.  Which is weird.  Given that markets are uncertain places, shouldn’t the desire for certainty be viewed with suspicion, as something unnatural and ill-fitting for the task at hand?

Benefits of ambivalence

Most people are drawn to leaders and experts who express unrelenting confidence and optimism.  But a one-sided world view can lead to a toxic positivity where dissension is unwelcome and shortcomings aren’t addressed, resulting in a narrowing perspective that obscures opportunities.

Conversely, those who freely express their ambivalence — and the need to consider the dissonant evidence that exists — create an environment for better decision making.  Their openness to new ideas and a variety of perspectives signals to others that divergent thinking is an essential activity.  The results:  more exploration, more learning, increased interaction with others who might have valuable information and insights — and better outcomes.

Two sides

This is a paradox.  People tend to be turned off by those who are willing admit their ambivalence, even though there are powerful benefits to doing just that.  Two sides of one coin.

Two more sides:  Rothman’s work is grounded in the study of “emotional ambivalence.”  We might also think about something we could call “analytical ambivalence.”  The latter is borne of the range of evidence that is surfaced as a result of any thorough analytical effort; there are always pluses and minuses.

That analytical ambivalence feeds the emotional ambivalence, which can also be affected by the memory of prior decisions and experiences, the cultural environment of an organization, and market conditions.  Too often, it’s all kept inside, hidden from others.

Implications for due diligence

The “people” and “culture” sections of most due diligence analyses come up short in regard to topics like these.  (To use the terminology of the Academy course, they lack explanatory depth.)

Some relevant questions regarding your due diligence work:

Is the willingness to express ambivalence — to talk openly about the uncertainties of any idea or strategy — a good marker on which to judge an investment professional or organization?

If so, what tactics do you use to reveal it?

What is your preference?  Do you favor people and organizations who are highly confident in their positions, or would you rather have them be open about the uncertainties that exist (and their own doubts and concerns)?

Looking back at your past work, have you addressed this dimension in your analyses?  Why or why not?

How would you place the people/organizations that you have analyzed and recommended on a spectrum — in terms of their (avowed) uncertainty or certainty about their beliefs and decisions?  (Take out a piece of paper and consider the best ways to plot them and see what the distribution shows.)

Implications for manager selection

As you sell your ideas to others in your organization, the same dynamic comes into play.  Are you allowed to talk about the uncertainties that you have regarding a given manager, strategy, or organization — or would giving a balanced view of the pros and cons mean that your recommendation would be discarded in search of a more “perfect” candidate, one for which you don’t have any ambivalence?  (Translation:  You hide any ambivalence you have.)

Such cultural impediments mean that the benefits of sharing that ambivalence — analytical and emotional — aren’t captured.  The selection of a manager starts without the proper context, without the whole story, without an emphasis on the uncertainties.  This especially happens with “world class” or “top quartile” managers, even though their organizations are messy too if you bother to look closely.

As a result, disappointments are more common than need be, simply because the going-in expectations are too high.  That is a key reason for the revolving door of manager selection.

Permanent uncertainty

Shankar Vedantam, the host of Hidden Brain, often asks the researchers who are his guests on the podcast to relate stories from their own experience that illustrate the findings of their work.  He did so to good effect with Rothman.

Of special interest were her observations about her father, who by nature was a model for the virtues of ambivalence that she ended up studying.  He was “uncomfortable with premature certainty,” always wanting to learn more about something prior to passing judgment and being open to, even seeking out, disconfirming evidence.

The reality for investment professionals is that real certainty is unachievable, even when our confidence level rises to the point that we confuse the two.  Decisions need to be made, even though we remain in a state of permanent uncertainty.

A willingness to embrace that uncertainty — and to talk openly with others about the ambivalence it engenders — is an unappreciated superpower worth discovering.