By Mitchell Pratt

Have you ever thought about buying a car, and now that it’s front of mind you find yourself noticing it everywhere you go? Have you ever made a major decision or established a viewpoint in your life and the following day you find yourself looking for information to be sure that you made the right choice?  That’s Confirmation Bias.

Science Daily references “Confirmation Bias as being a tendency to search for or interpret information in a way that confirms one’s preconceptions, leading to statistical errors”. In short, it’s when the brain makes short cuts in researching, short cuts that lead to you feeling more comfortable with a decision even though you may not have considered the alternatives fully. There are a few reasons why we make decisions like this and believe me, this list is in no way exhaustive:

  1. Firstly, every one in this modern day society is time poor and doesn’t have the time to research everything.
  2. Next is that the brain can be, at times, lazy.
  3. There is a lot of information out there; especially given the ways we can easily ‘Google’ for any article or viewpoint we’d like. But with so many viewpoints from any odd body, it becomes complex on where to begin to research and how to really know whether its source is fully trustworthy.
  4. Lastly, we already surround ourselves with like-minded people – so when we have a view point on something, chances are your friend or family members will have a similar viewpoint. I mean, how could you go wrong if you and… your friend have the same idea?

So, how do we go about combating against Confirmation Bias to ensure that we are making the right choice? Well, you can do two things, preferably together. Firstly, you can actively look for opposing positions to your decision/viewpoint. Say for instance with todays volatility you may want to pull your funds out of the market. Which in turn leads you to ‘Googling’10 reasons to be in cash right now” or “10 reasons to hide my money under a mattress”. Instead you should be looking at “why you should be in the market” or “why does Warren Buffett buy-and-hold?” That way you can make a fully informed choice and be comfortable that even when hindsight sets in that you gave yourself the greatest probability of achieving your desired outcome.

Next, have a sounding board, when you need to make a major decision in your own life, speak to someone who is not influenced by personal feelings or opinions in considering and representing the straightforward facts of the matter. In our experience, your professional adviser is best placed to provide an objective point of view. So, the next time you need to make a major financial decision, speak to your financial adviser, it’s what we do, it’s our purpose.

If you’d like to know more or begin to get your financial affairs in order contact Cosca on 1800 283 895.

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confirmation bias and it's impact on financial choices, investment choices, stock choices, property choices