Confirmation Bias

Confirmation Bias is the tendency to overemphasize the importance of information that confirms our views or current investments.

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Investors affected by the confirmation bias look at recent price moves as representative of the future and invest more in securities that have recently done well and less in those that have under performed. This can accentuate price trends and leads to their acceleration and continuation.

Confirmation bias bullet points:

  • We look for evidence that confirms our existing beliefs and practices
  • Presentation of not confirming evidence: Ignore it or change it to fit with beliefs
  • Confirmation bias is subconscious level of humans
  • Investors should Interrupt by keeping an open mind and hearing investors don’t want to hear
  • Investors should backtest and research beliefs, assumptions, results and investments