Confirmation bias causes investors to seek out only information that supports their beliefs from "summary" of The Little Book of Behavioral Investing by James Montier
Confirmation bias is a common trap that many investors fall into. This bias causes individuals to seek out information that confirms their existing beliefs, while ignoring or dismissing anything that contradicts them. Essentially, investors are drawn to information that aligns with their preconceived notions, which can lead to poor decision-making. This bias can be dangerous because it blinds investors to potential risks or alternative viewpoints. By only seeking out information that supports their beliefs, investors may miss key facts or data that could influence their decisions in a more informed way. This can result in missed opportunities or unexpected losses. Confirmation bias can also lead investors to misinterpret information that they do come across. They may filter out anything that doesn't align with their beliefs, leading to a skewed perspective on a particular investment or market. This can result in a false sense of security or overly optimistic outlook, which can be detrimental in the long run. In order to combat confirmation bias, investors should actively seek out diverse perspectives and information sources. It's important to challenge one's own beliefs and assumptions, and to consider alternative viewpoints before making investment decisions. By being open to different perspectives and actively seeking out contradictory information, investors can make more well-rounded and informed choices.
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