2.Delinkvaluationsfromreward/punishment.Anyvaluation
processwheretherewardorpunishmentisconditionalonthe
outcomeofthevaluationwillresultinbiasedvaluations.In
otherwords,ifwewantacquisitionvaluationstobeunbiased,
we have to separate the deal analysis from the deal making.
3.Noprecommitments.Decisionmakersshouldavoidtaking
strong public positions on the value of a firm before the
valuationiscomplete.Anacquiringfirmthatcomesupwitha
pricepriortothevaluationofatargetfirmhasputanalystsin
anuntenablepositioninwhichtheyarecalledupontojustify
thisprice.Infartoomanycases,thedecisiononwhethera
firm is undervalued or overvalued precedes the actual
valuation, leading to seriously biased analyses.
4.Self-awareness.Thebestantidotetobiasisawareness.An
analystwhoisawareof thebiases he orshebringsto the
valuation process can either actively try to confront these
biaseswhenmakinginputchoicesoropentheprocessupto
more objective points of view about a company’s future.
- Honest reporting. In Bayesian statistics, analysts are
required to reveal their priors (biases) beforethey present
theirresultsfromananalysis.Thus,anenvironmentalistwill
havetorevealthatheorshestronglybelievesthatthereisa
holeintheozonelayerbeforepresentingempiricalevidence
tothateffect.Thepersonreviewingthestudycanthenfactor
that bias in while looking at the conclusions. Valuations
wouldbemuchmoreusefulifanalystsrevealedtheirbiases
up front.
Whilewecannoteliminatebiasinvaluations,wecantryto
minimizeitsimpactbydesigningvaluationprocessesthatare