ANU Student Managed Fund

Behavioural Biases Risk Management Framework

This version: 2.10

Creation Date: 13/04/2020

Version Date: 08/09/2020

Version 1.7

Creation Date: 07/04/2020 Version Date: 21/04/2020

Behavioural Biases Risk Management Framework

This version: 1.2

Creation Date: 13/04/2020 Version Date: 15/05/2020

Version 1.7

Creation Date: 07/04/2020 Version Date: 21/04/2020 Page 1

Table of Contents Glossary ...... 3 1. Overview ...... 4 2. Objective ...... 4 3. Scope of Framework ...... 4 4. Behavioural Biases Risk Management Process ...... 4 4.1. Initialisation ...... 4 4.2. Monitoring ...... 5 4.3. Reporting ...... 5 5. Responsibilities ...... 5 6. Behavioural Biases and Mitigation Strategies ...... 6 7. Techniques for Improving Decision Making ...... 10 8. Framework Review ...... 12 9. Future Considerations ...... 12 References ...... 13 Appendix A – Behavioural Bias Identification Checklist ...... 14

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Glossary AA - Asset Allocation AAE - Active Australian Equities BBRMF - Behavioural Biases Risk Management Framework COB - Close of Business CGS - Charter and Governance Structure CIO - Chief Investment Officer CRO - Chief Risk Officer Q&A - Question & Answer R&C - Risk and Compliance RT – Relationship Team SMF - Student Managed Fund

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1. Overview

The Behavioural Bias Risk Management Framework (BBRMF) aims to improve the decision-making processes of the Student Managed Fund (SMF). In particular, it outlines the key behavioural biases that may arise in SMF meetings; and proposes techniques which may be implemented to help mitigate the effects of these biases on group decision making. This document details a risk management process for moderating behavioural biases in the SMF; assigns responsibility to specific SMF team members at each stage of the process; and sets out a procedure for reviewing and updating the BBRMF.

2. Objective

The objective of the BBRMF is to set out a process that can be implemented to mitigate behavioural biases and improve decision making. The framework aims to support the Fund’s culture of contestability. It aspires to foster an environment where all members are comfortable voicing their respective opinions, with diverse views encouraged and respected.

3. Scope of Framework

The BBRMF applies to the overall SMF team and across all sub-teams. At the time of writing, the following list of behavioural biases are the focus of the framework. The details of each bias can be found in Section 6. - Dominance Effect - Group Think - Information Cascade - Production Blocking - Confirmation Bias - Overconfidence - Social Loafing This is not an exhaustive list, and there is scope for additional behavioural biases to be included in future. The Risk and Compliance (R&C) team have primary responsibility for implementing the framework. Further details on responsibilities can be found in Section 5.

4. Behavioural Biases Risk Management Process

Intialisation Monitoring Reporting

4.1. Initialisation

Initialisation involves including the BBRMF in the “On-boarding” email to be sent by the Chief Investment Officer (CIO) to new fund members, and the presentation of the BBRMF by R&C to the

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SMF at the beginning of each semester. The purpose is to ensure all fund members are aware of the existence of behavioural biases, so that they can be mindful of them when participating in meetings throughout their time in the Fund.

4.2. Monitoring

The R&C team has primary responsibility for monitoring behavioural biases at the SMF and sub-team levels. An R&C analyst will attend at least two sub-team meetings each semester, as nominated by the Chief Risk Officer (CRO).1 Additionally, in certain SMF and sub-team meetings (as decided on by the CRO), all R&C analysts will scrutinise behaviours for evidence of biases. The R&C analysts should take notes on what they observe during the meetings by referring to the application checklist (see Appendix A). R&C should have a dedicated discussion of any findings from observing the SMF and sub-team meetings.

4.3. Reporting

The nominated R&C analyst will meet with the relevant Team Head, the CRO and the CIO to provide team-specific feedback and advice on any behavioural biases identified, including potential mitigation strategies to resolve any biases that may lead to sub-optimal decision making. In the case of a sensitive or complex issue, the Fund Convener and Course Convener may be asked to join this meeting. R&C will also collate their general observations from the SMF and sub-team meetings and present these to the entire Fund twice through the semester2.

The reporting process is designed to create a feedback loop that engenders effective and efficient communication between the independent observer (R&C), the Team Heads and the rest of the Fund. The aim is to work together to resolve any problems that may negatively impact the decision making process.

5. Responsibilities

5.1. Risk & Compliance Team The R&C team, led by the CRO, has primary responsibility for designing, observing, implementing and reviewing of the BBRMF.

5.2. Chief Investment Officer The CIO is responsible for overseeing the R&C team’s application of the BBRMF by attending the ‘feedback’ meetings between R&C and the Team Heads, as well as R&C meetings as the CIO sees fit. The purpose of this is to provide another independent opinion, recognising that assessment of behavioural biases is subjective.

5.3. Team Heads All Team Heads are responsible for attending meetings with nominated R&C analyst(s) to receive feedback on the behavioural biases within their teams. The Team Heads should work with R&C to

1 It is recommended that the R&C analyst attends two consecutive meetings in the first half of the semester and two in the second half, to help determine if any observed biases are recurring. 2 The CRO and CIO have discretion as to which weeks these presentations occur, but Week 6 and 11 are recommended. Page 5

address and behavioural biases that are identified, using the techniques outlined in this document and advised by R&C. If a potential behavioural bias is observed by the Team Head where an R&C analyst is not present, they are encouraged to implement the relevant Behavioural Biases Mitigation Strategies (Section 6) or Meeting Techniques (Section 7).

5.4. SMF Team It is the joint responsibility of the SMF Team to understand and actively apply the Behavioural Biases Mitigation Strategies that will be presented to them early in the semester. SMF members are encouraged to approach R&C to discuss any queries regarding the BBRMF or its implementation.

6. Behavioural Biases and Mitigation Strategies

Tables 6.1 and 6.2 outline the behavioural biases covered by this Framework, as well as mitigation strategies to reduce their negative impact on decision making. Note that these strategies do not guarantee the elimination of sub-optimal decisions, and SMF members are encouraged to remain watchful for evidence of biased behaviours even after these strategies are implemented.

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Table 6.1. Behavioural Biases and Mitigation Strategies Behavioural Bias Description Strategies (See Table 6.2 for reasoning) Dominance Effect Individuals perceived to be dominant can have - Team polls.3 an undue influence on group decision-making. - Release agenda in advance. - Upload meeting materials in advance. - Ensure all members are able to participate in discussions. - Encourage contestability from all SMF members.4 - Red Team. - Abstain option. - Be mindful of ANU Code of Conduct and SMF Key Value related to “team”. Group Think Individuals in a group tend to seek concurrence - Team polls.3 at the expense of independent critical thinking. - Release agenda in advance. i.e. propensity to support the majority and avoid - Upload meeting material in advance. disunity. - Consideration of multiple scenarios, rather than a single view. - Encourage examination of contrary evidence. - Red Team. - Be mindful to stay focused on SMF Key Values related to “objectives” and “long term” Information Cascade Individuals modify their actions or decisions - Team polls.3 based on observing others in the group. - Provide a reasonable amount of time (as determined by the CIO) between presentations and polls for post-meeting Q&A. - Monitor the distribution of content once a poll is live.5 - Red Team. Production Blocking In a brainstorming session, it may be difficult to - Release agenda in advance. think of new ideas while listening to others in - Upload meeting material in advance. the group at the same time. - Presenters encouraged to communicate their willingness to answer post-meeting questions.

3 Polls are arranged at the discretion of the CIO, Team Heads or presenters. The CIO determines whether the poll is binding or non-binding, and whether responses are anonymous or identifiable. Voter identity is visible to the poll author (usually the CIO) to ensure all members have participated. Note: This process was adopted following technical issues arising during Semester 1, 2020. 4 To promote diversity of thought, any senior or junior member holding a contrary opinion should be encouraged to posit their opinion to the team. If they do not feel comfortable doing so in the SMF weekly meeting, they are encouraged to make use of Slack polls and communications following the meeting. 5 Any broad distribution of material once a poll is live should be monitored by the CIO and the nominated R&C analyst. The CIO, in consultation with the nominated R&C analyst, have the power to take down any material that they think may be negatively influencing group decision making. Page 7

Behavioural Bias Description Strategies (See Table 6.2 for reasoning) - Allow for a short Q&A session at the beginning of meetings to revisit matters.6 Confirmation Bias Individuals tend to selectively search for, - Consideration of multiple scenarios, rather than a single view. interpret or recall information that confirms - Encourage examination of contrary evidence. pre-existing beliefs. - Red Team. Overconfidence An individual’s confidence in his/her abilities - Consideration of multiple scenarios, rather than a single view. or judgement can be greater than their actual - Encourage examination of contrary evidence. knowledge or capabilities. - Red Team. Social Loafing Individuals reduce their effort when in a group, - Vote-Discuss-Vote. expecting other group members to complete the - Limit the distribution of content once a poll is live. task. - SMF student selection criteria and application process. - Peer reviews feed into assessment. - CIO catch-up (mid semester).

6 Members are encouraged to liaise with the CIO prior to the release of the meeting agenda to allow for appropriate time allocation. Page 8

Table 6.2. Behavioural Biases Mitigation Strategy - Reasoning Strategy Reasoning Team poll Ensure the opinions of all team members can be communicated, and are treated equally. Release agenda in advance Facilitates pre-meeting research and preparation in order to form independent opinions. Upload meeting material in advance Provides information to members to support forming independent opinions prior to discussions. Ensure all members are able to participate in discussions Ensures every individual’s opinion is considered and respected. Red Team7 Stimulates discussion by bringing alternative perspectives and encouraging contestability. Abstain option Allows members who are unable to formulate an individual opinion to formally record their abstention. ANU Code of Conduct Creates an environment which encourages respectful contestability. SMF Key Values Focusing on selected Key Values can act as a reminder of what the team should be aiming to achieve. Monitor the distribution of content once a poll is live Helps ensure no one member adversely influences the exercise of independent judgement.

Presenters encouraged to communicate their willingness to Ensures adequate opportunity for ideas, concerns and questions to be formulated and raised. answer questions that may arise post-meetings Allow for a short Q&A session at the beginning of meetings to Provides an opportunity to raise ideas, questions and concerns from the previous meetings. revisit matters Consideration of multiple scenarios, rather than a single view Avoids the selective search for information and reliance on a single view. Encourage examination of contrary evidence Requires the team and its members to consider alternative perspectives and information. Vote-Discuss-Vote8 Stimulates SMF members to be more involved by undertaking research and preparation to form their own opinions before the first meeting and vote; then reconsider after discussion before the second vote is held. SMF student selection criteria and application process Ensure incoming members are culturally aligned, of high standard, and aware of the commitment required. Peer reviews feed into assessment Awareness that peer feedback will be incorporated in grades should encourage active participation. CIO catch-up (mid semester) Private forum that can deal with any complaints of social loafing.

7 If a dominating viewpoint is observed during a SMF meeting, R&C will act as a “Red Team” to bring an alternative perspective and mitigate Group Think behaviour; see Yin and Collie (2018). 8 Two rounds of votes should be considered when there is an important decision to be made. The pre-meeting vote provides an anchor, capturing independent judgement. This can help SMF members to make a more informed decision in their final vote; see Yin and Collie (2018).

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7. Techniques for Improving Decision Making

Mitigating behavioural biases represents one way to improve decision making. The ability of a group to make effective decisions also depends on a number of other factors, including: i. Diversity of opinions ii. Effective information sharing and processing iii. Independent judgements iv. Effectively combining individual opinions9

This section outlines some techniques to help foster these factors.

7.1. Meeting Techniques Yin and Collie (2018) suggest that “there is no magic bullet to making meetings a breeze.” Table 7.1 outlines meeting techniques to support the four factors specified above. The techniques apply to four stages of decision making: Pre-Meeting, Presentations In-Meeting, Discussions In-Meeting and Post- Meeting. The purpose of utilising these meeting techniques is to facilitate better discussion at all stages of decision making.

7.2. Feedback Loop

Feedback from SMF members regarding the decision-making processes and whether the BBRMF adds value to meetings is to be encouraged and valued. One feedback mechanism is that the R&C team might distribute a survey to gauge member views on whether they and other team members have been given sufficient opportunity to be active in SMF discussions, both at the overall Fund and sub-team levels.10

9 Yin and Collie (2018) 10 The survey could include scope for qualitative responses regarding potential additions or improvements that could be considered by R&C to enhance the BBRMF. Page 10

Table 7.1. Meeting Techniques Stages Purpose Techniques Pre-Meeting To simulate regular discussions and - Agenda items categorised – mark as ‘for information’, ‘for discussion’ or ‘for decision’. active engagement among members. - Structure – designed to provide equal opportunity for team members to speak. - Flow plan – ensure important matters are addressed in livelier sections, e.g. at start of meeting, not end. - Materials – distributed prior to meeting; required to be read in advance. Presentations To present information effectively - Mix of presentation styles – no fixed mode; team members may use PowerPoint or alternative mediums. In-Meeting so that it achieves the objectives of - Narrative style presentations – story-telling encouraged, as can lead to better engagement with material.11 the presentation. - Mix of information sources – distinguish between objective and subjective information; ensure all material is appropriately referenced.

Discussions In- To encourage diversity of opinions - Mindset – members encouraged to attend meetings with the intent of being engaged and asking questions. Meeting and ensure all SMF members are - Juniors – encouraged to not rely on senior members to speak first. given equal opportunity to provide - Steering the conversation –direct towards those who have not contributed to discussion. input. - Channels of communication – provide multiple avenues for members to express opinions e.g. parallel discussion or polls on Slack; use ‘raise hands’ to speak during meetings. - Preventing information squashing – acknowledge that less polished ideas may be worthy of discussion.

Post-Meeting To prevent strong opinions being - Post-meeting polls – CIO should utilise polls to gauge the opinions of SMF members on topics discussed. shared during the voting period that - Anonymity – anonymous polls are encouraged but not mandatory. might lead to Group Think once a - Distribution of content – CIO and R&C should monitor the distribution of content once a poll is live. poll is live.

11 Research has shown that our brains process narratives and storytelling much better than data, see Yin and Collie (2018). Page 11

8. Framework Review The BBRMF is designed to evolve over time. The R&C team is responsible for undertaking a review each semester to ensure that existing strategies are appropriate for the SMF operations, and consider adding other strategies or techniques that could further enhance the decision making processes. The review is envisaged to occur around the mid-point of each semester, in order to apply the findings in the second part of the semester. The suggested procedure for this review is as follows: 1. Poll to SMF members to gauge attitudes toward the BBRMF. The CRO is to critically evaluate the responses. 2. Review the Behavioural Biases Risk Management Process (Section 4) to determine whether the overall procedure to mitigate behaviour biases remains appropriate. 3. Scrutinise the existing Behavioural Biases Mitigation Strategies (Section 6) and Improving Decision Making Techniques (Section 7) to determine whether the content remains relevant and appropriate. This step should be conducted in collaboration with the CIO to monitor any behavioural biases within R&C during the Review process. 4. Research potential new behavioural biases and mitigation strategies, and determine whether they can be adequately applied to the SMF processes. 5. Collate the findings from Steps 1 to 4 to formulate potential adjustments and improvements. The CRO should notify the CIO of any proposed amendments. 6. Present the findings and any proposed amendments to the SMF team, encouraging discussion to allow the SMF team to provide feedback and input. 7. R&C finalises any proposed amendments to the BBRMF. 8. Approval of the revised BBRMF as follows: • Changes to the SMF Behavioural Biases and Mitigation Strategies (Section 6) and the Meeting Techniques (Table 7.1) are subject to the SMF voting protocols.12 • Other changes can be made by the R&C team, subject to approval from the CIO.

9. Future Considerations Two elements have been identified to be potentially addressed in the future: 1. Prescribe a clear process to monitor behavioural biases within the R&C team. This recognises that the R&C team itself is not immune to behavioural bias, and acknowledges the benefits of implementing the BBRMF within all sub-teams of the SMF. 2. Develop tailored Behavioural Biases Mitigation Strategies for the AAE, AA and RT team that account for the differing team dynamics. This may stem not only from the differing functions and size of each team, but also because team dynamics may vary each semester with the personalities of team members. The mitigation strategies may be tailored on an on-going basis accordingly.

12 A “Super Majority” of 75 per cent is required, in line with the SMF team decision protocols (see the “ANU SMF - Team Decision Protocol” in the CIO sub-site on SharePoint). As per the protocols, the R&C team member votes are abstained. Page 12

References Collie, B. and Ezra, D. 2007. Resist the Amygdala! Institutional Investment Decision Making. Russell Research. Available on SMF SharePoint under R&C ‘Behavioural Bias’.

Yin, L. and Collie, B. 2018. Better decision-making: a toolkit. Thinking Ahead Institute. Available on SMF SharePoint under R&C ‘Behavioural Bias’.

Mukherjee, N. 2017. Comparison of techniques for eliciting views and judgements in decision-making. British Ecological Society. Available on SMF SharePoint under R&C ‘Behavioural Bias’.

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Appendix A – Behavioural Bias Identification Checklist13 Dominance Effect Group Think

Did you observe any form of Comments/Observations Have alternative views been raised by Comments/Observations dominance? How regular? (Yes/No/Neutral): any of the members, or there is an (Yes/No/Neutral): unanimous view?

Reference Point(s): Reference Point(s): • Particular team member’s opinion • Different members putting across or comments given undue weight the same idea • Concluding the argument without • Opinions voiced but left out any discussion without due consideration • Inclusive environment? • Favoritism

Information Cascade Production Blocking

Did you observe any member who Comments/Observations Is new information getting raised for Comments/Observations forms their opinion, comments or (Yes/No/Neutral): the first time during the meeting? (Yes/No/Neutral): decisions by repeating the views of Has there been enough time to other members? reflect on various ideas and opinions pre/during/post the meetings? Reference Point(s): Reference Point(s): • Reframing the same idea with • Material available for team in different words timely manner • Hesitance to speak first, or express • Presenter(s) provide enough time a different view for Q&A

13 The checklist provides a reference for identifying the potential behavioural biases that could arise during meetings. The checklist is not exhaustive, and the R&C analyst should exercise discretion in recording any new behavioural biases observed. R&C will develop this checklist over time, as the BBRMF evolves.

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Confirmation Bias Overconfidence

Any material, viewpoint, articles Comments/Observations Does the discussion reveal Comments/Observations shared that could unduly impact the (Yes/No/Neutral): contestability, and adequate (Yes/No/Neutral): opinion of others? consideration for how a decision or team view formed might be wrong? Reference Point(s): Reference Point(s): • Accepting a view already formed • Ideas supported by objective without question. analysis and explanations • Focusing on evidence that supports • Discussion of multiple scenarios or an existing view; while ignoring or alternative outcomes discounting contradictory evidence • Contrary ideas presented (Red Team)

Social Loafing New Bias?

Did the majority of team members Comments/Observations Did you make any other Comments/Observations participate in the discussion or in (Yes/No/Neutral): observations that cannot be (Yes/No/Neutral): forming any opinion/decision? categorise under existing behavioural biases?

Reference Point(s): • Number of opinions voiced • Materials examined beforehand • Any disinterest from members?

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