Confirmation Bias

We let confirmation bias take control of our mind by only seeking out information from sources that agree with our pre-existing beliefs.  Conversely, we tend to ignore and dismiss information (= disconfirming evidence) which tend to disprove our initial impressions.

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It’s the tendency to interpret the glass as either half-empty or half-full, according  to our prejudices which always seem self-evident to us.

This father of all fallacies is a cognitive error that frequently pops up among investors and even “professional” fund managers because when it comes to issues of financial security, we all get a bit irrational.  We like to interpret new information so that it becomes compatible with our existing theories and stock selections.

Blame it on the human brain.

The brain is hardwired to pay more attention to bad news than to good news.  And what we pay attention to naturally appears to be more important and more real.  This is a dangerous practice.

Watching the fluctuations in your stock portfolio on a daily or even hourly basis could drive you crazy because you will fret over the dips and they will worry you about 2.5 times more than the increases will please you.  This creates an emotional deficit that will distort your thinking.

On a practical level, this means that most people get too bearish on dips.  With respect to the dips in the stock markets, do check to see whether you are looking at the stock through fear colored glasses.  If yes, try to take them off.

In a social context, there are controversies as to whether this confirmation biases counts as truly irrational or whether it could also result in useful attitudes or behavior.  For example, when getting to know others, we tend to ask leading questions which seem biased towards confirming our assumptions about the person.  This kind of confirmation bias has been argued to be an example of social skills: a way to establish a connection with the other person or a way to finding commonalities.

In conclusion, not all biases are bad per se.  However, the first step is awareness, then recognition that we all suffer from it, followed by conscious “favorable” usage of those biases.

One way to work around this confirmation bias is by disciplining ourselves to consider not just the data that might fit with our beliefs but also the data that might lead other people to have beliefs different from ours.

You will never defeat confirmation bias totally, but knowing it’s there can prevent you from becoming a slave to it and turning your head into a haven for false beliefs.

“We don’t see things as they are.  We see things as we are.” — Anais Nin

“Facts do not cease to exist because they are ignored.” – Aldous Huxley

“The line between perception and cognition becomes blurred. What we perceive (or think we perceive) is heavily determined by what we know, and what we know (or think we know) is constantly conditioned on what we perceive (or think we perceive).” – James O’Donnell

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