The Value of Playing Devil's Advocate in Investing
Confirmation bias can lead investors to make bad decisions. Here's how to avoid it.
This is the 12th article in the Behavioral Finance and Macroeconomics series exploring the effect behavior has on markets and the economy as a whole and how advisors who understand this relationship can work more effectively with their clients.
Confirmation bias is a belief perseverance bias. It's a type of selective perception that emphasizes ideas that confirm our beliefs and de-emphasizes information that contradicts our beliefs. As humans, we believe what we want to believe, and we seek information that supports our beliefs rather than seek information to the contrary.