Confirmation Bias in Financial Planning

Confirmation bias is the tendency for people to seek out information or solutions that align with their existing beliefs, thoughts, or feelings when making decisions. It’s a cognitive shortcut our brains often take to process information more quickly and efficiently.

Though this sort of quick thinking can be time saving, it can also restrict our decision-making process, resulting in choices that are not fully thought out or appropriately challenged. The other potential problem with confirmation bias is that it happens unknowingly. So to challenge your own confirmation bias you need a level of personal awareness, a system of checks and balances and/or outside influences to help level your perspective. 

One aspect of life that is impacted by confirmation bias that you might not have previously considered in your finances. From smaller decisions like which brand of cereal you buy to larger ones like what you consider a good investment, how much of those choices is based on what you’ve always done or previously heard, and how much of those decisions come with the due diligence of why that choice is and is not the best one for you?

In this video, Julian Strauss looks at a specific example of how unconscious bias might impact your financial decisions and why taking the counter position helps bring clarity and encourage smart decision making.