Beware Of Behavior, Part 2 – Confirmation Bias

There are various psychological biases that play out with investing. Many are well known such as the “hindsight bias” where we tend to view past events as predictable after the fact. However, one lesser known but damaging bias is the “confirmation bias.” This is the bias that takes place when information or an event supports our belief.

Take for example the following two examples –

Information – You buy a phone from a technology company and are so impressed that you believe the stock of the company is a good buy. The next day you open the newspaper and on the front page there is an article about the same company, with the author stating that they believe the stock is a good buy.

Event – You are convinced that the stock market is oversold and you should buy more. The next week, the market goes up every day.

When either of these play out, we are much more likely to anchor ourselves to our original belief despite more information or events that might point to the contrary.

Disclaimer: Alex Voorhees and Reston Wealth Management do not provide legal, accounting or tax advice. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified investment, tax or legal advisor. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategies may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss. You should consider the investment objectives, risks, charges and expenses of any investment carefully before investing.