Financially Speaking Podcast

We See What We Want to See

Published on October 16, 2015

Something funny happens when we make up our minds about a particular idea.  We start looking for evidence to support our idea or theory.  But in the process, we tend to ignore anything that contradicts our thinking.

Often we go looking for evidence to support a decision that we have already made.  We make a decision and then, only then, do we go and do our ‘research’. The ‘research ‘automatically dismisses anything that disagrees with the decision we have already made; and gathers information which only supports the decision we have already made.

If you were to get two emails, on of which is titled ‘Ten Reasons Which Supports the Decision I Have Made’ and other which is titled ‘Ten Reasons Which Disagrees With the Decision I Have Made’, you would delete the later email.  We reject or ignore information which is contrary to what we have decided.  Think about it.

Most of us make these mental mistakes and this one is called confirmation bias

A prime example of this the current rampant cascade of people who think there is a eminent, cataclysmic event in the stock market. Because of confirmation bias they will search for information (TV, newsletters, websites) which seems to support their belief or theory.  But there is always other information which these people seem to ignore. The best way to combat confirmation bias is just to remember that there always two sides to every story.

After decades in the financial industry, I have found that there are always as many reasons to stay in the stock market as there are to get out of the stock market. Investors simply can't time when to get in or out of the stock market.  It just doesn't work and confirmation bias is one of the reasons.



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