Have you ever wondered why we humans prefer the irrational practice of obsessing about defending the choices we make, sometimes while knowing full well our error in judgement. We often reject outright an alternative equally valid viewpoint especially when it comes to our economics and financial decision-making particularly since it is so critical to our future well-being.
You see, in behavioral economics Confirmation Bias is a theory that sheds light on why you will exhibit the tendency to lean towards information that validates preexisting beliefs. This inclination is a fundamental aspect of human nature and occurs regardless of your positin in a debate: you may have a tendency to search for information that reinforces your point of view. Agreeable and comforting to be reaffirmed that you are right, naturally. It affects the way you process and engage with all the information you could have. Confirmation bias is your preference to favor information that confirms your already established beliefs.
Across all the oceans and in all the ports of call that your travels take you, you will rarely find a person whose firmly held beliefs cannot be justified rationally by themselves. However, rationality does not always equate to truth. We tend to believe our own reasoning is flawless, viewing those who disagree with us as misinformed, illogical, irrational and incorrect. Ever heard someone say “Real estate is the best investment on the planet?” Or “Stock A is always a better investment versus stock B!” Try challenging their views with alternative points of view with facts and data and you might experience first hand confirmation bias at play.
While we can identify confirmation bias in others, we often overlook it in ourselves due to our preconceived logic. This failure to acknowledge our own blind spots is a major factor in the feeding and strengthening of our personal economic and financial biases. This trait can easily turn into intractable dogmatism. Confirmation bias in us is a type of self-deception with significant negative financial consequences. Remember the person who justifies procrastination of retirement planning with the “I don't have money to invest” bias. It leads to close-minded and short-sighted thinking, reinforcing itself and making those affected less receptive to critical thinking or opposing perspectives. The fact that we are all vulnerable to confirmation bias is a major impediment to our long-term financial well-being. Watch out for it.
Think about it!