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Is the Certainty Bias Causing Doctors to Make Financial and Medical Mistakes?

The certainty bias is a particularly strong bias and heuristic. And we may think that as “sophisticated” and educated doctors, we are not as susceptible to the certainty bias and the like. But this is not the case (more on that later). In fact, the certainty bias may be leading us to make some financial and even medical mistakes.

And maybe mistake is too harsh of a term. However, we can say that it leads us to make irrational decisions. Not irrational in the sense of being insane or something. But irrational in terms of psychology – where we make decisions inconsistent with what provides the greatest overall utility.

So, let’s dig in!

What is the certainty bias?

The certainty bias or certainty effect is the heuristic or phenomenon that, faced with a choice, humans favor a slightly less beneficial guaranteed positive outcome than a high probability of a more beneficial outcome.

certainty bias mistakes

Such a decision is irrational. In a psychological or utilitarian sense.

So why do we favor this bias? Well, because we are not robots or purely rational beings. And that’s ok. When I say that we are irrational, I don’t mean that in a pejorative way. It’s just the best description that I can think of.

I fall for the same biases and am just as irrational. My hope is that by learning to recognize them, we can be more present or contemplative when these choices arise. We may still choose in favor of the bias. But at least we will be aware of it!

Is this all clear as mud yet?

Let’s give an example to illustrate

Let’s say that you are faced with the following choice. You can choose either Option A or Option B.

  • Option A. You have a 90% chance to win $10,000
  • Option B. You win $8,000

And there is one last assumption in this little thought experiment. Let’s assume that all of us are high income earners, like doctors, facing this certainty bias inducing experiment. That means that we are not abjectly in poverty. Thus, the amount of money we are discussing here, while we would love to have it, will not make a difference in our day to day survival. We will still be able to eat, provide shelter, care for our loved ones, and meet other basic needs.

So, with that set up, which would you choose?

If you are like me, you favor option B. It just makes sense in your mind. But this just doesn’t make utilitarian sense!

In simple terms, the utility of Option A is $9,000 (90% * $10,000). The utility of Option B is obviously $8,000. Therefore, we should favor option A.

But we don’t!

And that is the certainty bias. And study after study demonstrate the reliability of this bias across the human population.

But do doctors succumb to the certainty bias?

Let’s not mince words. Yes. The certainty bias impacts across the socioeconomic and educational boundaries, including doctors and other professionals.

Looking for some anecdotal proof?

I ran an informal poll on Instagram and over 96% of the respondents chose Option B. And many were upset when I tried to explain that, technically, Option A makes more sense!

It even led me to record my first TikTok video. (Don’t make fun. Ok fine, you can make fun!)

So, we’ve proven that doctors are susceptible to the certainty bias. So, how could this impact us?

Let’s keep it simpler and look at this from a financial lens first…

How can the certainty bias can lead doctors to financial mistakes?

Three examples come to mind…

1. Annuities

There are tons of different kinds of annuities. But in general, they work the same way. You give the annuity company a flat fee. And in exchange they provide a (usually) guaranteed yearly payout or, essentially, salary.

If you work out the numbers, the large majority of the time, simply investing your nest egg according to your financial plan and withdrawing an (on average) 4% annually to cover expenses will work out better than an annuity.

But this is not guaranteed. And an annuity is. And as a result, despite a lower utility, many doctors make the financial decision as they near or hit retirement to buy an annuity.

2. Insurance

Let’s invert our illustration of the certainty effect. Now, imagine that you have to choose between the following options.

  • Option A. You have a 10% chance to lose $10,000
  • Option B. You pay $2,000 and have 100% chance to lose nothing

Again, Option B tends to be favored. This is essentially what insurance is.

Of course, there is some nuance here. In this example, again, the money that we are talking about is not catastrophic. So, Option A really is the best option with a utility of $1,000 versus $2,000 for Option B. This is why it is not recommended to buy the insurance for a new couch or even your cell phone. Better to take the risk.

A big caveat, however, is when we talk about insurance regarding potentially financial catastrophes.

In our first illustration of the certainty bias above, if you cannot cover basic needs, then a guaranteed $8,000 does make sense. Similarly, if you stand to lose a catastrophic amount of money – such as a disability and inability to earn as a doctor – then insurance makes sense.

This is why term life, disability, malpractice, car and home insurance make sense for doctors. And that’s about it.

3. Paying off debt vs. investing

This one sort of hurt my head to think about. But what it essentially comes down to is the whole idea of interest arbitrage…

So, interest arbitrage is the idea that if you have a choice between two options with expected returns on investment, it makes sense to choose the one with the higher return.

So, if you have a debt with an interest rate of 5% and you can invest with an expected return of 7%, it mathematically makes sense to invest that money. You get a higher return.

However, I am a big proponent of paying off debt! The return of paying off debt is guaranteed. It is also guaranteed to immediately increase your net worth by the commensurate amount. So, in this case, I fall hard for the certainty bias.

Related Post:
Net Worth Update: From -$400K to +$400K in 14 Months

However, there is more to the story. Because it is rarely this simple. My concern is always that people don’t actually invest the money that they earmark for investing. It gets siphoned off to other purchases. Further, this is only a certainty effect if you are investing ins something like low cost, broadly diversified index funds. If you are investing by active trading, in cryptocurrency, or some other to-be-avoided investment like these, the decision is a no-brainer – pay off your debt!

Now that we have discussed the way doctors could make financial mistakes due to the certainty bias, let’s wade into murkier waters…

How can the certainty bias can lead doctors to medical mistakes?

Let’s again reframe out illustration above. Now, imagine there is a global pandemic (not so hard to imagine, right?). Choose between the following options.

  • Option A. There is a treatment that, if adopted, provides a 90% chance to save 1,000 lives.
  • Option B. Treatment B will save 800 lives.

What would you choose? It becomes a bit harder right? Most people tend to be risk averse in these conditions. Because Option A comes with a 10% chance of saving 0 lives, Option B becomes more attractive, even if the utility of Option A is 900 lives.

But this example also illustrates another bias called the framing effect. Consider the following:

There is a global pandemic and you have to choose between the two options:

  • Option A. There is a treatment that, if adopted, has a 90% chance of only 100 people dying
  • Option B. There is a treatment that, if adopted, will result in 200 people dying

When framed in this way – where both choices are bad – we tend to be more risk seeking. Option A seems attractive now. Even though it is exactly the same as Option A in the first scenario.

Managing the certainty bias in our lives as doctors

Now, it is rare in medicine or even finance that there are such distinct choices with such concrete and differing outcomes.

So this is obviously contrived.

However, everyday we face complex decisions and are at risk of influence from various bias including the certainty bias which can lead to unintentional mistakes in decision making.

It behooves us to be aware. And that is what this is about!

Looking to learn about other financial mistakes that doctors (ahem, me!) make?

What do you think? Have you noticed certainty error in your life? Has it caused any mistake to be made? Let me know in the comments below!

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    Jordan Frey MD, a plastic surgeon in Buffalo, NY, is one of the fastest-growing physician finance bloggers in the world. See how he went from financially clueless to increasing his net worth by $1M in 1 year and how you can do the same! Feel free to send Jordan a message at [email protected].

    1 thought on “Is the Certainty Bias Causing Doctors to Make Financial and Medical Mistakes?”

    1. dude great post man! I definitely use the certainty bias to keep me invested, trying to level behavioral biases and heuristics to keep me invested. Instead of paying off my 2.6% fixed student loan debts, I invest where my 100% equities will make 10%. I don’t frame the 2.6% as a guaranteed return with certainty nor do I think about how the 100% equities is not guaranteed. 🙂 Overall my goal is to make as much money as possible for retirement, and I think framing my thinking this way and levaraging how my brain works to maximize my profit is incredibly helpful to investing success.


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