Navigating Attribution Bias
“That’s not how any of this works.”
If you find yourself wanting to say that in response to a colleague, you may be facing someone who has fallen susceptible to Attribution Bias.
Attribution Bias refers to the systematic errors made when people evaluate or try to find reasons for their own or others’ behavior. These systematic deviations from rational judgment can lead to inaccurate assessments and illogical interpretations.
In the context of energy, one of the places that the Attribution Bias appears is in the price of oil, which often has more to do with the significance of expectations about the price than strictly the dynamics of supply and demand would dictate. Consider the following timeline of prices for Brent Crude Oil, the price barometer for ~80% of global crude, and events related to the war in Ukraine.
➤ November 29, 2021: $69.51 per barrel.
➤ February 7, 2022: $94.44 per barrel. Tensions between Russia and Ukraine have been rising for three weeks since arrival of Russian troops in Belarus.
➤ February 24, 2022: Russia invades Ukraine, resulting in heavy fighting, a bombed gas pipeline, and fires at oil refineries.
➤ February 28, 2022 – $114.34 per barrel.
➤ March 7-May 30, 2022 – Heavy fighting continues, with oil prices fluctuating between $102.17 and $117.03 per barrel.
➤ June 6, 2022 – $119.02 per barrel – a peak price for 2022.
➤ June 13-November 28, 2022 – The war rages on. Oil prices fall.
December 5, 2022 – $76.60 per barrel, below a pre-war peak of $85.53 per barrel in October 2021.
To be clear, at no point during this span of time did the actual supply of oil fluctuate below levels of demand. Ultimately, it became clear that there were no strictly economic reasons for oil to increase in price by more than 70% as a result of the invasion of Ukraine by Russia.
Instead, suppliers were fearful that the supply of oil could be affected, and prices rose even as suppliers seemed to ignore the fact that the global oil supply was not materially impacted, in spite of sanctions on Russian oil imports. In other words, market makers very likely inferred that customers would attribute the price increase to the invasion of Ukraine even if the global supply of oil remained sufficient to satisfy their needs.
In a dynamic and complex environment like that created by the global energy transition, the hype of the news cycle can be a trigger for falling into the mistake of the Attribution Bias when making strategic decisions.
At Tilt Global, we help clients avoid cognitive biases by employing a disciplined approach to context analysis using our PRISM framework and by increasing teams’ awareness of these kinds of potential pitfalls in decision-making.