Confirmation bias is the tendency for people to prefer information that confirms their preconceptions or hypotheses, independently of whether they are true or not. This bias can be commonplace in the financial world as research exists for both sides of the market. Throw in the growing social aspects of the web and it’s very easy to find the information that confirms your beliefs.
The most likely reason for confirmation bias is that it’s easier to digest cognitively than data that disagrees with our thinking. In other words, cognitive bias is a form of laziness that can have adverse effects on market participation. Like blinders on a race horse, such bias can and often does lead to large losses and trading on tilt.
I love stocktwits and use it daily, but it can prove to be the perfect place to confirm one’s biases if you’re not careful. The option to follow anyone that tweets information that confirms your thinking is as easy as a click of a mouse. I would encourage you to take a look at your stream and see if there is anyone in it that would dare disagree with you. Furthermore, I challenge you to step outside of your comfort zone and follow a few people who disagree with you and your opinion. It’s healthy!
I have an exercise that I share with clients that have fallen victim to both cognitive and confirmation bias. Contact me if you want the details.
“It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. If you’re smart, surround yourself with smart people who disagree with you.”
– Isaac Jaffe from SPORTS NIGHT: “THE HUNGRY AND THE HUNTED”