Crises often highlight how long-held assumptions can be challenged, exposing shades of cognitive bias and leading to faulty interpretations of unfolding trends.
Some of this carries an echo of the behavioral economics thinking pioneered by Israeli economist Daniel Kahneman, whose work on the psychology of judgment and how biases affect financial decision-making earned him a Nobel Memorial Prize in 2002. In a conversation with UBS in 2017, Prof. Kahneman talked about how human judgment is “much less stable and much noisier than most people think.”
Those words could just as well have been spoken today as investors and corporate executives grapple with how to navigate huge uncertainties triggered by the pandemic. Now, more than ever, there is a real need to ask smarter, better questions to guide what data you need to look for to get more useful answers, while recognizing and mitigating the cognitive biases that can lead to poor judgment.
Data and judgment are at the heart of UBS Evidence Lab, an alternative data provider that partners with the bank’s analysts across the world to equip investors with ways to read the right signals and spot trends ahead of the curve. In existence for six years, the unit powered more than 3,000 research reports in 2019, covering every sector and all geographies.
It exists alongside the UBS Question Bank, the largest global database of market-related questions asked by professional investors.
Barry Hurewitz, Group Managing Director, Global Head of Evidence Lab Innovations UBS, explains that his team’s mission is to surface relevant insights that “advance understanding on the uncertainties” by distilling the most important debates and turning them into central research questions that can be tested. These debates include questions about deurbanization and the reordering of global supply chains, about shifts in consumers’ habits or what social distancing might look like coming out of the current crisis.
“The starting point is determining what the most important questions are now, in the near-term and over the long-term,” says Mr. Hurewitz. “Then, you have to think about which of those questions will be hardest for the market to calibrate.”