We all have a preferential set of intuitions, feelings, and ideas.
Less poetically characterized by the term “bias”.
These little quirks in our thinking pose a challenge to our ability to weigh evidence accurately to arrive at truth. Bias is that fat thumb that experience puts on the scale.
Bias is an intuition – a sensitivity, a receptiveness – that acts as a lens or filter on all our perceptions.
As it happens we have at our disposal an immeasurable assortment of biases, and their combination in each of us is as unique as a fingerprint. These biases mediate between our intellect and emotions to help solidify perception into opinion, judgment, theory, and often ideology, which frame how we see the world.
Let’s assume you have a wonderful stock in your portfolio that is 40+% down from your entry price.
How did it get there?
Well, you had an initial stop loss in place. And then it happened. The Backfire Effect chased you down. This unfriendly bias made you believe something with greater confidence when you were confronted with evidence or strong arguments that your stock is doomed to continue its downtrend.
Because of this bias toward digging in your heels, more and stronger evidence often results in strengthened irrational belief.
In investing, shareholders of companies facing heavy criticism often become fanatical, die-hard supporters for reasons totally unrelated to the company’s actual performance.
Be aware of it and resist it or you may end up defending nonsense.
Make sure you don’t fall victim to the backfire effect by carefully examining evidence that seems to contradict your preconceptions, and allow for the possibility that you might have been wrong.
The more confident you are in an idea, the more accurately you should be able to state and rebut the opposing view. It’s amazing how much trouble this approach can keep you out of.
No harm to change your mind, or to change it often, especially when the facts change.
Writing about those scales up there at the beginning of the post reminds me of another example loosely related to that Backfire Effect:
“When our bathroom scale delivers bad news, we hop off and then on again, just to make sure we didn’t misread the display or put too much pressure on one foot. When our scale delivers good news, we smile and head for the shower. By uncritically accepting evidence when it pleases us, and insisting on more when it doesn’t, we subtly tip the scales in our favor.” – Psychologist Dan Gilbert in The New York Times
“A man has to know his limitations.” – Clint Eastwood
“My approach works not by making valid predictions but by allowing me to correct false ones.” – George Soros on Himself