How Cognitive Dissonance Thwarts Investment Decision-Making
Here's a strategy for helping clients recognize and learn from their investment mistakes.
This is the 14th 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.
When presented with information that conflicts with pre-existing beliefs, people often experience mental discomfort--a psychological phenomenon known as cognitive dissonance. Cognitive dissonance is a belief perseverance bias, because humans tend to stick with ideas they already believe to be true. This is a very common and very human characteristic, and this concept is ever-present in the world of investment decision-making.