By Robert Pagliarini
The problem with confirmation bias is that you selectively filter what information you choose to pay attention to and value. So, not only will you actively look for evidence that confirm your existing beliefs, but even more perniciously, you'll discredit any information that contradicts your viewpoint. Here's five tips to minimize this cognitive distortion
The holocaust never happened. The moon landing was staged. And "Sex and the City 2" is a great movie.
How do I know this? I did a Google search.
No matter what your position is, you can find support for it. The lesson? Be careful what you ask, or maybe more appropriately, be careful how you ask. In psychology, the term for this is "confirmation bias," and it can have damaging consequences for your finances and your life if you're not careful.
Nobody likes to be wrong, so we'll actively try to find support for our existing beliefs. We'll scour the Web to try to find anybody saying anything that remotely resembles our own beliefs. We ask, "Well, how can I be wrong when blogger 'iheartcarrie' clearly agrees with me?"
The problem with confirmation bias is that you selectively filter what information you choose to pay attention to and value. So, not only will you actively look for evidence and seek out experts that confirm your existing beliefs, but even more perniciously, you'll hide from or discredit any information that contradicts your viewpoint. This can cause you to dump money into a failing business, to dump time into a bad relationship or even to stay in a stock too long.
For example, let's say after watching the stock market go up and up and up over the past year, you decided to jump back in a month ago (woops). Now you're fully invested and you've just seen the market drop 10 percent. If you're suffering from confirmation bias, instead of rationally evaluating the long-term economic and financial outlook of the U.S. and global economy, you may selectively read just those blogs or columns that are bullish. If you come across an article that is bearish, you'll dismiss it or maybe not even read it.
Confirmation bias isn't just a problem for investors. It's a problem you need to be aware of when looking for a spouse, starting a business, interviewing for a new job, managing people and any other situation where a supply of fresh information can help you make better decisions.
Confirmation bias is very difficult to recognize, but here are five tips you can use to help minimize this cognitive distortion:
Five Tips to Avoid Confirmation Bias
1. Remove your ego
At its root, confirmation bias is an ego disease. We hate to be wrong, and we're desperate for others to validate our position. Seek the truth over being right, because if you disregard the truth long enough, you'll eventually be proven wrong anyway.
2. Seek disagreement
Foster an environment where it is not only okay to disagree but also encouraged. Asking friends, family and employees, "Am I right?" will likely get only those who agree with you to speak up. A better question is, "Why am I wrong?" At meetings, require everyone to play devil's advocate. Early on, it might be difficult to get this kind of feedback from others because they're probably not used to thinking about why you're wrong (well, at least verbalizing it), so turn it into a game and reward the best answers.
3. Ask better questions
One of the most worthless questions to ask a friend or co-worker is "How do you think I did?" It's worthless because you'll never get any constructive feedback. A much better question is, "What could I have done differently to make it better?" By changing the question ever so slightly, you'll be shocked at the honest advice you'll hear.
4. Keep information channels open
Constantly seek alternative views and opinions in print, on TV and in person. That might mean visiting Web sites, reading newspapers and watching shows that you've previously avoided. Remember, seek the truth not evidence that you're right.
5. Google better
Don't search what you want to prove, because with over 3 billion Web pages, you're bound to find one that agrees with you. Instead, use open-ended searches that aren't biased.
Keep these five tips in mind, and you'll avoid confirmation bias. Now if you could only avoid "Sex and the City 2." ...
Robert Pagliarini is a CBS MoneyWatch columnist and the author of "The Sudden Wealth Solution: 12 Principles to Transform Sudden Wealth Into Lasting Wealth" and the national best-seller "The Six-Day Financial Makeover: Transform Your Financial Life in Less Than a Week!."
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