Confirmation Bias
(reading time – 40 sec.)

Confirmation bias is the tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses. People display this bias when they gather or remember information selectively, or when they interpret it in a biased way(if two individuals have the same information, the way they interpret it can be biased).

Confirmation bias can lead investors to be overconfident, ignoring evidence that their strategies will lose money. In studies of political stock markets, investors made more profit when they resisted bias. For example, participants who interpreted a candidate's debate performance in a neutral rather than partisan way were more likely to profit. To combat the effect of confirmation bias, investors can try to adopt a contrary viewpoint "for the sake of argument". In one technique, they imagine that their investments have collapsed and ask themselves why this might happen.


Topic: #CognitiveBiases
Source: Wikipedia