Wealth Management for Women: What Makes a Great Advisor? Part 1: Avoiding Confirmation Bias
Written by Andrew Hunt
Written by Jason Hiley
“All media shares one thing: Someone created it. And it was created for a reason. Understanding that reason is the basis of media literacy.”
In previous installments of our “How To Be Positively Skeptical” series, we covered the many forces that tease us into falling for misinformation. Bottom line, our brains are hardwired to lead with fight-or-flight instincts ahead of rational resolve. As such, our critical thinking often plays second-fiddle to rash reactions such as fear, excitement, overconfidence, and regret.
In the financial jungle, it’s essential to look before you leap at emotion-triggering misinformation. Here are five “do’s” and “don’ts” for doing your best fact-finding due diligence.
Also watch out for confirmation bias. If you want something to be true, you’ll be more inclined to believe it is. Likewise, if you wish something weren’t so, you’ll assume it probably isn’t.
Also watch out for familiarity bias. We take mental shortcuts to more quickly trust people who are familiar to us, whether or not our trust is well-placed.
Also watch out for blind spot bias. We can more objectively spot others’ behavioral biases than we can recognize our own. This is one reason why even a well-intended individual may be unaware of their own misperceptions.
Also watch out for hindsight bias. Hindsight bias tricks us into altering our memories to reflect current reality. In other words, once you decide to believe a repeated claim, you may forget you didn’t believe it the first time.
Also watch out for herd mentality. Herd mentality intensifies our greedy or fearful reactions to breaking news. We are prone to run in whatever direction everyone else is headed.
How Do You Do Your Due Diligence?
Of course, nobody can research every claim they come across. There are only so many hours in the day! So, what are some practical steps for efficiently differentiating fact from fiction? We’ll cover that in our next, and final installment in our “How To Be Positively Skeptical” series.