Home
登录真实账户
Ready to trade?
Register now

Psychology of Trading: CONFIRMATION There is a belief

👤 Psychology of Trading: CONFIRMATION There is a belief

🔘 Most people tend to look for information and collect evidence to support a pre-existing viewpoint. We actively seek and attach greater importance to information that supports our hypothesis, while ignoring any evidence that refutes it. Simply put, once we have formed an opinion, knowingly or not, we are unlikely to be objective in gathering information. This tendency is caused by the desire of our brain to find the shortest path to process information in an efficient and practical way. Agreed, this makes sense in the modern world, where information is limitless, and the time for making decisions is limited. 

🧐 British psychologist Peter Vason coined the term in the 1960s. Around the same time, experiments showed that people are prone to validating existing beliefs. Later research has reformulated this phenomenon as a tendency to test hypotheses in a one-way way, focusing on one outcome and ignoring others. 

🇺🇸 An interesting historical example is Abraham Lincoln, who deliberately filled his government with rival politicians with opposing ideologies. To avoid confirmation bias, of course.

🧠 Confirmation bias stems from the existence of cognitive dissonance in human nature. This is the state we experience when two conflicting beliefs are simultaneously held in the brain. There are two main cognitive mechanisms through which we express this principle:

1️⃣ Most people are afraid of finding out that they are wrong. Problem avoidance encourages us to ignore information that goes against our beliefs, thereby minimizing cognitive dissonance.

2️⃣ Most people want to know they are right. We seek out information that supports our views, which helps us deal with conflicting data and dissonances that can arise.

📈 Because confirmation bias is a shortcut for the brain, it allows investors to make quick decisions. Investors, as a rule, when evaluating information, ask questions in such a way that only an affirmative answer is possible, thus the opposite data is often overlooked, intentionally or otherwise.

❓ WHAT TO DO?

Regardless of the evidence presented, if we are not aware of what is happening, we are more likely to interpret the data in a way that supports our point of view. Fortunately, once you acknowledge this contradiction, several strategies can help keep your confirmation bias in check.

1️⃣ DEVELOP AN ALTERNATIVE INVESTMENT MESSAGE - this also reduces the likelihood that an investor will reject conflicting information without future consideration. Understanding the critical negative as well as positive factors of any investment raises the investor's risk awareness.

2️⃣ SEARCH FOR DISCLAIMING EVIDENCE - You should actively seek out people and news sources with alternative opinions. For example, in 2013, Warren Buffett invited hedge fund manager Doug Kass to attend Berkshire Hathaway's annual meeting, expressing views that contradicted his own. Cass was a critic of Buffett's investment style and was short in stocks.

3️⃣ RESPONSIBILITY TO OTHER PEOPLE - We are less likely to exhibit confirmation bias if we have to justify our decisions and actions. This is due to our desire to avoid negative feedback or perceptions rather than trying to be more precise.

4️⃣ TECHNOLOGY IS YOUR FRIEND - Probably the best way to combat confirmation bias in investing is through the use of advanced technology. Computers process information in an open-minded and dispassionate manner. 

* left circle: Objective facts, right circle: Something that confirms your beliefs. Middle: What do you see?

See

Ready to trade?
Register now
ExpertOption

公司不向美國,加拿大,歐洲經濟區,瑞士,以色列,新西蘭,澳大利亞,朝鮮,波多黎各,新加坡,孟加拉國,印度尼西亞,俄羅斯,伊朗和也門的公民和居民提供服務。

合作伙伴
合作计划
Partners

支付方式

Payment and Withdrawal methods
本网站提供的交易可视为高风险操作,其执行可能涉及重大风险。在买卖网站提供的金融工具和服务时,可能会给您带来显著的投资损失,甚至亏损账户的全部资金。您被授予有限的非独家权利(包含个人、非商业、不可转让的知识产权)使用本网站所提供的服务。
------------------------------------------------------------------------------------------------------------------------------------------
© 2014–2021 ExpertOption
ExpertOption版权所有。