Confirmation Bias

Confirmation bias is one of the most common biases in decision-making. Once someone forms a view, they tend to notice evidence that supports it and overlook evidence against it.

For example, an investor who believes a company's shares will rise may focus on positive news and optimistic analyst reports, while dismissing warning signs such as falling sales or rising debt as temporary. This can lead them to hold a losing investment far too long.

Confirmation bias is reinforced by online algorithms and social media, which often show people more of what they already agree with, and by discussing investments mainly with like-minded people.

Ways to reduce it include deliberately seeking out opposing views, writing down the reasons for an investment and what would prove them wrong, reviewing decisions regularly against the original reasoning and asking someone else to challenge the case. Recognising the bias is the first step towards making more balanced decisions.