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March 2020.
Markets were falling sharply.
Every day seemed to bring another frightening headline.
Businesses were shutting down.
The economy was uncertain.
Investors were scared.
And yet, something interesting was happening.
Some investors were convinced that the market would recover.
Others were convinced that the worst was still ahead.
Both groups were looking at the same market.
But they weren’t necessarily seeing the same information.
If you believed the market would recover, you noticed the headlines about stimulus, vaccines, falling valuations and opportunities.
If you believed a deeper crisis was coming, you noticed rising infections, economic disruption and further market risks.
The information was the same.
But the attention was different.
This is where Confirmation Bias enters.
(Picture Source: https://in.pinterest.com )
Once we form a belief, our mind naturally looks for information that supports it.
Not necessarily because we are deliberately ignoring the truth.
Our brain simply pays more attention to information that fits what we already believe.
And then comes Selective Attention.
We don’t have the capacity to process everything around us.
So our minds filter.
We notice some things.
We overlook others.
And slowly, the information we consume begins to reinforce the decision we have already made.
This can happen with almost anything.
You buy a mutual fund because you believe the category will perform well.
You start reading only positive articles about it.
You hear someone raise a concern.
You dismiss it.
Another positive opinion appears.
You save it.
Soon, it feels as though everyone agrees with you.
But perhaps you haven’t discovered more evidence.
You have simply created an information environment that agrees with your existing belief.
There is a simple psychological test for this.
The next time you feel strongly about a financial decision, don’t ask:
“What evidence supports me?”
Ask:
“What evidence would prove me wrong?”
Then actively look for it.
That doesn’t mean you should automatically believe the negative view.
It simply means you are giving your brain a chance to challenge itself.
Because good financial decision-making isn’t about finding information that makes us feel right.
It is about being willing to discover that we might be wrong.
