Confirmation Bias

Confirmation bias is the tendency to seek information that supports a person’s beliefs. 

For example, during the holidays, your great Aunt Edna may have already decided that everyone loves her fruitcake.  

She will then look for evidence supporting her belief, ignoring the fact that most family members, well…don’t love her fruitcake.

We see confirmation bias in our personal life, politics, and even sporting events.

This is especially true in investing.

This bias may lead investors to focus only on information reinforcing their opinions about an investment or the market. 

Once an investor has decided that an investment or the market might look promising or not so bright, they may choose which information to use to support that belief.

This may lead to a lack of diversification, market timing, and good old-fashioned worry.

So what can you do about confirmation bias?

Half the battle is recognizing that you may have confirmation bias, to begin with.

A quality decision-making process requires solid supporting evidence; not our biased experiences or gut feelings.

Once you do that, contact your financial advisor to review your current portfolio and your long-term financial goals, to ensure you stay on track and avoid confirmation bias.