CONFIRMATION BIAS IN INVESTMENT DECISION MAKING

Abstract

The disposition effect and excessive trading are two common errors made by investors. Confirmation bias is one reason for these phenomena. People have a tendency to get emotionally invested in their investing thesis and are unable or reluctant to accept information to the contrary. So, they produce speculative wagers and keep them even when they are trending south. People may be guilty of confirmation bias if they choose to learn information that supports their initial beliefs. This suggests that investors exhibit selective information seeking, which could be a source of confirmation bias and is thus a plausible explanation for the investor mistakes previously discussed. Investors make some errors that have been well-documented, like the disposition effect and excessive trading. Confirmation bias is one reason that could be given for these phenomena. Individuals have a tendency to get emotionally invested in their investing thesis and are unable or reluctant to accept information to the contrary. As a result, they place speculative wagers and hang onto them despite a declining trend. Those who gather information selectively in order to maintain their prior beliefs may be exhibiting confirmation bias. Through an experiment that provided participants the option to read an article in support of or opposition to an investment they had previously made, I looked into the selective information consumption of investors. In this study article, I'll concentrate on how confirmation bias influences investors' decision-making about investment timing and investment choice. Confirmation bias is a psychological phenomenon that causes people to seek out and interpret information in a way that confirms their pre-existing ideas and prejudices. This research article examines the topic of confirmation bias in investing decision-making. Overviews of the cognitive biases that underpin confirmation bias and how they affect investing decisions are given in this study. It looks at the consequences of confirmation bias on investment performance as well as the causes and remedies of this bias. The report ends with suggestions for financial experts and investors on how to identify confirmation bias in their decision-making processes, combat it, and ultimately enhance investment results. I discovered that readers are far more inclined to read an article that affirms their choice than one that criticizes the investment they have made. This demonstrates the selective information seeking behavior of investors, which may be a source of confirmation bias and, as a result, is a plausible explanation for the investor mistakes previously discussed. Overall, the article emphasizes how crucial it is to recognize and deal with confirmation bias in order to make more logical and knowledgeable financial decisions.