Andrew G Haldane: Central bank psychology
Speech by Mr Andrew G Haldane, Executive Director and Chief Economist of the Bank of
England, at the "Leadership: stress and hubris conference", hosted by the Royal Society of
Medicine, London, 17 November 2014.
* * *
The views are not necessarily those of the Bank of England or the Monetary Policy Committee. I would like in
particular to thank Rashmi Harimohan, Jeremy Franklin, Michael McMahon and Nick Mclaren for assistance in
preparing the text. I would also like to thank John Barrdear, Rob Elder, Bob Gilhooly, Chris Hackworth, Jeremy
Harrison and Gareth Ramsay for their comments and contributions.
13 September 2007 will be seen as a red letter day in financial history. It was the date news
broke of Northern Rock seeking emergency liquidity from the Bank of England, prompting the
first run on a UK bank in over a century. It also fired the starting gun on what subsequently
became known as "The Great Recession". That very day, the Bank hosted a conference. In a
painful irony, its theme was "The Great Moderation".
The Great Moderation described the long-period of pre-crisis macro-economic calm, with
stable growth, stable inflation and stable banks.1 This view held that central banks, while not
eliminating boom and bust, had moderated macro-economic undulations. It also held that
financial innovation, while not eliminating risk, had scattered it to the four winds.
As Great Recession abruptly replaced Great Moderation, it was clear a grave analytical and
policy error had been made. Economic and financial pride had come before a momentous
fall. Nemesis had duly followed hubris.2 It was the coldest of comforts that this cognitive
lapse was shared by the whole economic and policy-making profession.
Clinical diagnoses of this failure will continue for some time. Was this an example of the
intoxicating effect of power, the anaesthetising effect of success, or the humbling effect of
uncertainty? I do not know. But if nothing else, this episode underlines the importance of
cognitive constraints on decision-making when assessing the robustness of policy.
Over recent years, there has been a huge amount of research on how human
decisionmaking is affected by various cognitive biases.3 Behavioural economics, the fusion of
psychology and economics, has come of age. There has also been a huge amount of
research over many years on central bank decision-making.4 Yet the link between the two -
the psychology of central banking - has to date been largely unexplored territory.5
I want to engage in a little amateur psychology by beginning to explore that terrain.
Psychology tells us that behavioural biases, because they are neurologically hard-wired, are
often difficult to detect: they are unconscious biases. Simply recognising the cognitive
constraints on decision-making is thus a first step towards making policy robust to them.
So too is institutional design. Indeed, I wish to argue that the evolution of central bank policy
frameworks over recent years can be seen as an attempt to make them robust to
psychological biases. I want to illustrate that by reference to the Bank of England's policy
framework. And, based on that analysis, I want to suggest some areas where a further
evolutionary "nudge" in those frameworks might be warranted.6
Behavioural biases in practice
The literature on behavioural economics has sky-rocketed over recent years.7 This identifies
a long list of cognitive ticks that can affect human decision-making. All of these are likely to
affect policy decision-making to some degree. But from that potentially very long list, let me
highlight four biases which may pose a particular policy-making challenge.
Preference biases
Public policy involves making choices on society's behalf. Society typically delegates these
choices to an individual or set of individuals, often either politicians or bureaucrats. That act
of delegated authority means that policy decisions usually involve both a principal (society)
and an agent (such as government). The nature of that principal/agent relationship then
becomes crucial for effective policy.8
Yet history suggests that this relationship is not always entirely harmonious. One potential
source of friction is that the agent may have preferences which are not perfectly aligned with
society at large. This is human nature. For example, it might arise from the agent putting
personal objectives over societal ones, such as personal power or wealth.9
These problems have been widely studied in political and management science. In their
extreme form, this preference misalignment can manifest itself as autocracy (the pursuit of
personal power at society's expense) or corruption (the pursuit of personal wealth at
society's expense). Historically, such "extractive regimes" have had dire consequences for
societal welfare. Indeed, they may explain "Why Nations Fail".10
Historically at least, the antidote to these preference problems is typically found in institutions
- property rights, the rule of law, democratic processes. Strong institutions have often laid
the foundation on which nations have been built. Typically, these institutional structures
comprise an ex-ante mandate (agreed by society) and ex-post accountability mechanisms
(assessed by society). Colloquially, these are often called checks and balances.
For example, electoral democracy is an institutional response to a potential preference
misalignment between the electorate and the polity. Parties publish manifestos ex-ante to set
their mandate. And, if successful, they are held accountable for that mandate by society
expost through elections.11 Democracy, and its associated institutions, is the solution to an
ageless principal/agent problem.
What is true at the level of the nation state is also true at the level of the firm and the
individual. In firms, principal-agent problems can arise because managers put their own
preferences (for mega-mergers, mega-bonuses, mega-jets) ahead of shareholders.12 They
also arise from workers putting their own preferences (say, for an easy life) over managers.13
Institutional structures - in this case, company and employment law - can help solve these
problems.
Among individuals, preference biases can also have negative societal implications. In the
medical profession, there is research arguing that doctors systematically over-prescribe
drugs and over-admit patients to hospital.14 Neither may be in the patients', nor societies',
best interests. This is usually the result of doctors weighing their own preferences (the risk of
reputational or financial loss) over the patient's (the risk of health problems worsening).
Myopia biases
Psychological experiments show that people differ materially in their capacity to defer
gratification. The classic example is the "Marshmallow test" devised by Walter Mischel in the
1960s.15 Mischel gave children at Stanford University's Bing Nursery School the choice
between one marshmallow for immediate consumption or two if the child waited.
Not only did children differ significantly in their ability to defer gratification. As researchers
followed the fortunes of these children as they grew older, a remarkable pattern emerged:
children which had exhibited greater patience in their pre-school marshmallow test
subsequently outperformed their impatient counterparts in everything from school
examinations, to salaries, to reported levels of life satisfaction.
Subsequent sociological studies have established a longer list of ways in which impatient or
myopic behaviour influences human decision-making. Myopic individuals are more likely to
smoke, to suffer alcohol and drug addiction problems, to be obese and to have credit card
debt problems.16 Myopia also differs significantly across countries.17
To explain this, Richard Thaler developed a psychological model based on the "two selves".
In effect, each of us comprises a patient "planner" and an impatient "doer".18 Neuro-scientific
evidence has subsequently lent support to Thaler's model, with different areas of the brain
found to be responsible for patient and impatient behaviours.19
In practice, myopic behaviour appears often to hold sway in everyday decision-making.
People appear consistently to discount too heavily future rewards, a property called
hyperbolic discounting.20 This can explain myopic saving behaviour by households and
companies, when tomorrow's consumption is brought forward to today.21 And it can explain
political business cycles, when tomorrow's GDP is brought forward to today.22
Myopic behaviour also appears rife in risk decisions. People appear to exhibit risk myopia,
discounting risk events more heavily the longer the period that passes without that risk
materialising.23 This is the behaviour we see from car drivers whose speed gradually
13
Ross (1973).
14
Orlowski and Wateska (1992).
15
Mischel (2014).
16
As discussed in Urminsky and Zauberman (2014).
17
Wang et al (2011).
18
Thaler and Shefrin (1981).
19
McClure et al (2004), Figner et al (2010) and Lowenstein et al (2008)
20
Ainslie (1975).
21
Laibson (1997).
22
Nordhaus (1975).
23
Kahneman and Tversky (1979) and Thaler, Kahneman, Tversky and Schwartz (1997).
increases after witnessing an accident. It was also the behaviour we saw during the Great
Moderation when financial markets suffered progressively greater risk myopia (Chart 1).
Hubris biases
In 1965, psychologist Stuart Oskamp performed a multiple choice test on a group of
psychology students based on a case study. He also asked them to assign a confidence
rating to their answer.24 The students were then given more information on the case study
and asked to answer further questions with a confidence rating.
He found that additional information did nothing to improve the accuracy of the students'
answers. It did, however, cause the confidence rating they attached to these answers to rise
significantly. The addition of information and experience led students to become
overprecise, to over-estimate their abilities, to over-state their performance.
There is no shortage of casual evidence of such hubris or over-confidence biases. 90% of
faculty at the University of Nebraska rate themselves as above-average teachers.25 Over
90% of US students rate themselves as above-average drivers.26 And over 80% of
Frenchmen rate themselves to be above-average lovers.27
Over-confidence biases have been widely studied in politics and management. There is a
degree of Darwinian self-selection at work here. Over-confident individuals tend to
outperform in tournaments.
This means they are more likely to occupy positions of influence in the first place, whether
Prime Minister or CEO, though not Chief Economist.28
But the same factor that pushes these individuals to the summit may also push them over the
edge. Over-confidence increases the risk of over-reach - for example, pursuing
overambitious targets or undertaking over-complex company takeovers, generating an
aboveaverage risk of systemic failure. That is why nemesis is often thought to follow hubris.
What is true of those managing countries and companies appears to be no less true of those
managing money. Investment managers have consistently been found to over-estimate their
abilities and traders consistently to over-trade their positions. On average, there is little
evidence of either consistently out-performing their peers.29
Over-confidence effects tend to be more acute among individuals than groups, as groups
dilute the influence of hubristic individuals, as well as promoting a greater understanding of
others' perspectives. Consistent with that, studies of decision-making by the US Supreme
Court in the US have found benefits from expert, unelected committees.30
Groupthink biases
In 1951, Solomon Asch conducted a series of tests on a group of students. Each was asked
in turn to state which of three lines on a card matched the length of the line on a separate
card.31 The twist came in the fact that all but one of the participants was an actor, primed to
give the wrong answer. The real student, answering last, then responded.
These Asch experiments found something remarkable. The unsuspecting student conformed
to the group's wrong answers between a third and a half of the time. Their decision-making
suffered a systematic conformity bias. Interestingly, if as little as one dissenting view was
added, this conformity bias was reduced by up to 75%.
In 1972, Irving Janis called this tendency for groups to act cohesively "groupthink".32 Janis
focused on a number of US political decisions to motivate this concept, the most celebrated
of which was President Kennedy's decision to invade the Bay of Pigs in 1961. More recently,
groupthink was used to explain the Challenger space shuttle disaster.33
Groupthink is the collective manifestation of confirmation bias - the tendency to search and
synthesize information in ways which confirm prior beliefs. This, rather than alcohol, is why
drunks search for lost keys under the lamppost.34 Confirmation bias is prevalent in uncertain
environments, where popular narratives are used to filter uncertainties.35
Psychologists such as Janis have identified a number of ways to mitigate groupthink or
confirmation bias. Actively encouraging dissent in groups is one. Seeking alternative
perspectives from outside experts is a second. And having the group chair state their
preferences last is a third.36
Evolution of Bank of England's policy framework
Let me now describe the evolution of the UK's macro-economic policy framework over the
past half-century or so. This is a journey whose starting point was a rules-based regime over
which the Bank had little discretion and whose finishing line is a regime over which the Bank
exercises significant discretion.
For much of its 320-year history, the Bank of England's role in UK economic policy was as
operational agent. The role of policy principal was played by government.37 In the setting of
monetary policy, the Bank's role from the end of the second world war through to the 1990s
was as implementer, not decision-maker. The Bank had little, if any, independence in the
setting of monetary targets or instruments.
That changed progressively in the 1990s and decisively after 1997. Through the Bank of
England Act 1998, the Bank was granted operational independence for the setting of
monetary policy in the UK, to meet an inflation target set by government. Specifically,
monetary policy came to be set by a nine-person Monetary Policy Committee (MPC),
meeting monthly and comprising five Bank "internals" and four "externals".38
In the light of the crisis, the UK's policy framework has been further changed. The Financial
Services Act 2012 vested the Bank with further responsibilities, creating a new 10 person
Financial Policy Committee (FPC), meeting quarterly to execute macro-prudential policy. The
FPC sets regulatory policy to ensure the stability of the financial system as a whole. Like the
MPC, it comprises both internals and externals.39
The Financial Services Act also gave the Bank responsibility for micro-prudential supervision
- ensuring the safety and soundness of individual financial firms. This responsibility rests
with the Prudential Regulation Authority (PRA) at the Bank, specifically its Board. The PRA
Board also comprises both Bank insiders and outsiders.40
So in a nutshell, for the first 300 years of its history the Bank of England operated as an
agent of government. In the subsequent 20 years, its degree of policy discretion has been
transformed. It now comprises monetary, macro-prudential and micro-prudential policy - a
"3M" regime. The Bank's span of responsibilities may well be unique, at least among
advanced economy central banks.
Though there are differences in detail, there are also striking elements of institutional
similarity in the decision-making architecture for monetary, macro-prudential and
microprudential policy, as carried out by the MPC, FPC and PRA respectively. Let me mention four
features in particular:
(a) Goal dependence: The policy objectives of all three policy committees are set in statute
by Parliament, reflecting the attitudes of the electorate at large. In the language of
economics, the 3M regime thus exhibits "goal-dependence".41 Though different in detail,
these objectives share some similarities. For example, the MPC and FPC have a unique
primary objective, augmented with a common secondary objective.42
(b) Instrument independence: The policy instruments of the three policy committees are
delegated, through statute, to them. In other words, the settings of these instruments on a
day-to-day basis are for the Bank of England's policy committees, subject to meeting the
Parliamentary-set target. The 3M regime thus exhibits "instrument-independence".
(c) Committee-based decision-making: Decisions on monetary, macro-prudential and
microprudential policy rest with three Committees, rather than any one individual.43 The
Committees themselves vary in size from 9 to 11 people. They comprise a mix of Bank of
England "internals" and "external" experts. Decisions are made either by majority voting
(MPC), consensus (PRA) or by consensus with a provision for majority voting (FPC).
(d) Transparency and accountability: The deliberations and decisions of each Committee are
subject to public scrutiny. The minutes of MPC and FPC policy meetings are published. All
three Committees produce periodic reports, tabled in Parliament, on their actions and
analysis.44 And members of each Committee appear regularly before Parliamentary
Committees. There is individual accountability, as well as collective responsibility, for policy.
These institutional features are no historical accident. Each serves as a constraint on the
policy discretion exercised either by the Bank as agent or by its principal Parliament. The 3M
policy regime is one of "constrained discretion".45 Each of these constraints can, in turn, be
seen as an institutional response to the behavioural biases discussed earlier.
Behavioural biases in policy
So let me now link these institutional features to each of the behavioural biases. And let me
also try to provide some evidence on how successful these features have been in leaning
against these biases. With elements of this policy framework still fledgling, it is too early to
reach definitive conclusions on some of its features.
Preference biases
The policy frameworks of the MPC, FPC and PRA Board share the feature that targets are
set ex-ante in legislation by Parliament acting on behalf of society. The policy mandates of
the MPC, FPC and PRA are those of the principal (society), not the agent (the Bank). The
Bank is not setting its own exams.
Nor, ex post, is the Bank marking its own exams. For example, if the MPC fails to meet its
2% inflation target by one percentage point in either direction, it is required to write an open
letter to the Chancellor, setting out why this happened and how the MPC intends to respond
in returning inflation to target. And the Bank's regular policy reports set out the MPC, FPC
and PRA's intended actions and are subject to Parliamentary scrutiny.
These design features - ex-ante mandates and ex-post accountabilities - are explicitly
designed to ensure the actions of the Bank's policy committees are well-aligned with
society's wishes. They are designed to reduce the risk of the Bank becoming a
monomaniacal inflation-fighter or risk-slayer, with preferences out of kilter with society's.
To operate effectively, these institutional checks and balances need to be reasonably
wellspecified - for example, the mandate needs to be clear and monitorable. On the monetary
policy side, this is relatively straightforward. The MPC's inflation target is quantitative and
observable. It also appears to be pretty well-aligned with societal preferences.
The Bank conducts regular surveys of public attitudes towards the inflation target. They paint
a consistent picture. Around half of respondents think the 2% target for inflation is about right
(Chart 2). The minority who disagree are roughly evenly-split between those thinking it is too
low and too high.
There is also a striking correlation between public attitudes towards the Bank and
perceptions of inflation, with the public seemingly strongly averse to above-target inflation
rates (Chart 3). There is little sense that the Bank may be acting like an "inflation-nutter". This
pattern is replicated internationally where inflation targets are centred around 2% and survey
evidence indicates a strong public aversion to inflation.46
Even if public minds are made up on appropriate inflation targets, academics are not. Since
the crisis, a number of countries have operated near the zero bound for interest rates. It has
been argued that targeting a 2% inflation rate results in this zero bound constraint binding too
frequently, inhibiting the effectiveness of monetary policy.47 A higher target would loosen that
constraint. This academic debate may run for some time.
On the financial stability side, the position is less straightforward. There is no single, easily
observable or quantifiable target for systemic risk against which to hold the FPC and PRA to
account. And the public at large often do not have well-defined or strong attitudes towards
financial stability - except, perhaps, when things go wrong.
Since 2012, the Bank has been surveying the general public on how they believe the Bank
has performed in protecting the financial system. Some reassurance can perhaps be taken
from the fact that this has moved from a net dissatisfaction score of 13 in 2012 to a net
satisfaction score of 40 today.48 Nonetheless, by itself this approach falls well short of having
a clear objective against which the FPC and PRA can periodically be assessed.
The FPC has begun publishing a set of financial stability indicators against which it assesses
systemic risk and is held to account. And through the process of stress-testing the balance
sheets of financial institutions, the FPC and PRA are now laying out transparently the risk
standard they are requiring from firms and from the financial system as a whole and which is
the subject of external scrutiny.
But this has not fully allayed occasional criticisms of the Bank's regulatory policy choices. At
various times, the Bank has been warned against pursuing the stability of the graveyard or
the tendencies of the Taliban. A somewhat better defined financial stability anchor, set by
Parliament and reflecting society's desires, could over time damp these criticisms.
In the 1950s and 1960s, central banks and academics strove to define an appropriate anchor
for monetary policy. That brought success, with inflation targets and attitudes now
wellanchored. This gives grounds for optimism that financial stability can follow the same path
though, as monetary policy found, the journey is likely to be long and arduous.
Myopia biases
The Bank's monetary, macro-prudential and micro-prudential policy regimes all exhibit
instrument independence. Decisions are made by Committees of technocrats, operating at
arms-length from the political process. The case for delegation of policy responsibility is
founded on myopia biases within society at large or among its elected representatives.
In a monetary policy context, myopia tends to manifest itself as a desire to bring forward
tomorrow's income to today, typically by setting monetary policy too loose. As one former US
president is rumoured to have put it, "I want tight money - and lots of it". Myopia risks coming
at the expense of higher inflation tomorrow. It imparts an inflation bias.49
What is true of monetary policy is equally true of regulatory policy. A desire to bring forward
income may result in regulatory policy also becoming too loose. As one former British Prime
Minster put it, pre-crisis regulation was "hugely inhibiting of efficient business by perfectly
reasonable companies".50 Myopia then risks coming at the expense of a higher incidence of
crises tomorrow. It imparts a crisis bias.51
Luckily, these temporal biases also have a potentially straightforward solution. This is to
delegate decision-making over monetary and regulatory policy to an agency less prone to
myopia bias - an agent whose time horizon stretches beyond the political business cycle.
This is where central bank independence comes into the picture.
The inflationary experience of the 1970s and early 1980s was taken by many as evidence of
myopia-induced inflation biases. Politicians had flunked the marshmallow test. In response,
countries began granting central banks greater degrees of monetary policy independence, as
an institutional response to a behavioural bias.52
This international trend was followed by the UK in 1997, when the Bank of England was
granted operational independence. Has this curbed the inflation bias? Chart 4 plots a
measure of financial markets' expectations of UK inflation since 1985. Also shown is the date
of Bank of England independence and inflation targets since their inception in 1993.
These measures of inflation expectations were consistently and materially above target in the
period prior to independence - the myopia or inflation bias problem looked real. But from
pretty much the point of announcement of independence, they began ratcheting down. Within
12 months, they were aligned with the inflation target. They have stayed there in the period
since. The Bank of England has thus far passed the marshmallow test.
Another lens is provided by looking at the stability of inflation and output either side of central
bank independence (Chart 5). Since independence, UK inflation variability has fallen by a
factor of five and output stability by a factor of almost two. As this period saw the largest
macro-economic collapse in memory, it loads the dice against independence.
This evidence may seem to suggest that central banks have tamed the inflationary tiger. That
metaphor is apt. Friedrich Hayek likened the process of controlling the economy as akin to
taking a tiger by the tail.53 As far as inflation control is concerned, Hayek was right. As some
countries are finding today, the tiger is capable of biting back.
Chart 6 plots inflation expectations from financial markets in the UK, US, the euro-area and
Japan over recent years. In Japan, inflation expectations have been anything but
wellanchored, varying significantly around a trend close to zero. Most recently, they have been
falling once again. The same is true in the euro-area and, to lesser extent, in the US.
So far, inflation expectations in the UK have held up and, on a central view, the Bank expects
inflation to be on target at a 2-3 year horizon. But this tiger needs careful handling. Even in
the UK, some measures of household inflation expectations have fallen slightly over the
course of this year. The tiger has stirred. Wearing my MPC hat, and with UK inflation already
below target, this is something I am watching like a dove.
For financial stability, quashing myopia-induced crisis biases is at an earlier stage. The long
history of past financial crises attests to that. Tellingly, history often ascribes political
structures and incentives a key role in determining which countries are most susceptible to
crisis.54 It tells us why financial regulation has repeatedly failed the marshmallow test.
Nonetheless, there are institutional grounds for optimism. In the UK, the FPC and PRA have
been created as independent regulatory policy bodies housed under the Bank of England.
They are a direct response to past crisis myopia. They mimic the changes made to monetary
policy 16 years ago and, at root, were done for the same reasons.
For the FPC and PRA, still in their infancy, it is far too early to tell whether they will be able to
quell future crises more effectively than regimes in the past. Nonetheless, there are
encouraging straws in the wind. Surveys of market participants' expectations of systemic risk
- the closest analogue to inflation expectations on the financial stability side - have subsided
over recent years (Chart 7). How much of that is attributable to the new regulatory regime,
rather than external factors, is at present unclear.
Looking internationally, unlike with monetary policy, consensus has yet to be reached on
whether regulatory policy should also be set independently from government. A recent IMF
study found only half of macro-prudential regimes internationally were operated by central
banks, though a number of others were in the hands of independent regulators.55
Perhaps with the passage of time that will change, as with monetary policy independence.
Psychology suggests it should. Because the risk cycle is even longer than the business
cycle, myopia biases are even more likely when tackling crises than inflation. The case for
independence is at least as strong for regulatory policy as it is for monetary policy.56
Hubris biases
Under the UK's new framework, decisions on monetary, macro-prudential and
microprudential policy are made by Committee, rather than by an individual. Committee members
are individually accountable and drawn from inside and outside the Bank. This structure
provides some safeguard against over-confidence bias - for example, by diluting the
influence of any one individual's views on policy decision-making.
There is evidence to support this in monetary policy decision-making. In the early days of the
MPC, the Bank used experimental evidence to assess the impact of committee
decisionmaking. It found they made for better decision than individuals, by eliminating the bad play of
individuals but also by promoting learning among Committee members.57
Subsequent evidence from real-world MPC decision-making has found the same.58 For
effective information aggregation, individual MPC members need to bring a diversity of
views. While difficult to observe directly, voting patterns suggest a reasonable degree of such
diversity. There has been at least one member dissent from an MPC decision at around half
of all meetings (Chart 8).
External MPC members have contributed importantly to this diversity. On average, they have
been around twice as likely as internals to dissent from monetary policy decisions (Chart 9).
And although less likely to be in a minority, the Governor of the day has been outvoted on
nine occasions.59
Voting diversity does not of course prevent collective over-optimism. That might arise, for
example, if the MPC consistently over-estimated its ability to forecast the economy. Since
1996, the Bank has published forecast paths for inflation and output growth, together with its
assessment of the uncertainty around these estimates - so-called "fan charts".60 Chart 10
shows the fan chart for inflation from the Bank's most recent Inflation Report.
These fan charts allow us to conduct a real-world version of Oskamp's experiment. Chart 11
plots the standard deviation of the Bank's fan charts for output and inflation over time. During
the Great Moderation, forecast errors shrunk. The MPC narrowed their fan charts in
response, becoming more precise in their estimates of future output and inflation.
Post-crisis, that picture has changed radically. Forecast errors increased. The fan charts
were widened significantly, almost doubling for both future output growth and inflation. Like
psychology students of the 1950s, there was a significant degree of pre-crisis over-precision
by the MPC in their assessment of the economy.
Despite the post-crisis widening of the fan charts, it remains unclear whether the now higher
degree of uncertainty in the fan charts is correctly calibrated. Chart 12 looks at outcomes for
output growth and inflation since the crisis, relative to the MPC's probability distribution at the
one year horizon, broken down into 20% buckets.
If the fan chart distribution had been roughly right, these outcomes would be equally
distributed across the buckets. They are not. In practice, output and inflation have fallen
systemically into the tails of the distribution, with around 50% in the outer 20% buckets.
Groupthink biases
A related, but distinct, decision-making defect is confirmation bias or its collective
counterpart, groupthink. As with other biases, the institutional structures of the MPC, FPC
and PRA contain a number of safeguards. Committee-based decision-making, with individual
accountability and with the chair voting last, reduces the risk of a single collective narrative.
The degree of dissent across the MPC is also a positive diagnostic.
Nonetheless, Committee-based decision-making, especially by consensus, does not remove
the risk of conformity risk. Indeed, it cou