Personal Finance Essentials
Confirmation Bias
The Psychology of Investing > Confirmation Bias
This is when you agree with information that supports the view you already had, and you dispute or ignore information that challenges your beliefs.
If you think stock prices are too high and are likely to fall, you’ll gravitate to those who share that view instead of considering opposite views that might provide a different perspective.
The Media Trap
Confirmation bias shapes which news we consume. People who lean one way politically tend to watch news networks that reinforce their views. The same pattern plays out in investing. If you believe the market is about to crash, you’ll read the analysts who predict crashes and tune out those who don’t. This selective attention reinforces your existing view without ever truly testing it.
There are always pundits who will tell you what you want to hear. The danger is that by listening only to those who confirm your beliefs, you may be reinforcing a bias rather than forming a sound investment strategy. Actively seeking out views that challenge your own is one of the most effective ways to counter confirmation bias.