Do You Suffer from Confirmation Bias

The term "Confirmation Bias" was coined by English Psychologist Peter Wason back in the 60s, and refers to the tendency to search for, interpret, favour, and recall information in a way that reconfirms our own beliefs and values.

In English: we buy into things that supports something we already believe to be true but go against anything which challenges those beliefs, no matter how rational it sometimes is. We basically don’t like being proven wrong but we do like to be proven right - it makes us feel warm and fuzzy.

When you argue with someone, and you cannot possibly comprehend just how they cannot see your side and how your perfectly rational points aren't penetrating their armour made of stubborn - that can be, in part, due to confirmation bias.

And this attitude, tend to limit peoples ability to make rational investment decisions.

My favourite financial example, that I get a lot is "my moneys nice and safe in the bank".

We’ve lived in a low interest world for the past decade and then some, interest rates from banks have not kept up with inflation for almost 13 years so the only guarantee you get from leaving your money in the bank is that it’s guaranteed to lose money. I could you show you a thousand charts that disagree with your conformational bias on this, yet people still for some strange reason believe that they’re money’s safest in a high street bank. Yes you need cash savings, i.e your emergency pot. But don’t put your life savings here.

Last year the UK Govt issued bonds at a negative interest rate, banks will follow and soon you’ll be getting negative interest rates on your savings. That means you put in £100 today and next year it will be worth less. Are you still gonna tell yourself your money’s safe in the bank?

Don’t disregard something just because it may not align with what your initial belief was, have an open mind and look at both sides of the argument, on anything, not just finance, you’ll thank yourself for it later..

Thanks for reading,