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What biases do you suffer from ?

Discussion in 'Investor Psychology' started by keithj, 18th Sep, 2015.

  1. keithj

    keithj Moderator Staff Member

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    Everyone has biases..... even denying that you have any bias is a bias! Wiki has a list of a couple of hundred.

    Here are some of the most common....

    [​IMG]

    So next time you make an investment decision - maybe just do a quick check to see which of these biases you're guilty of.

    Of course it applies equally to the simpler things in life..... so before you next post something on PC, have a think about which ones you've succumbed to.
     
    Last edited: 18th Sep, 2015
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  2. Jingo

    Jingo Well-Known Member

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    I suffer from several of the above, 7, 10, 18. Not always helpful when investing or even when assessing the performance of my investments.

    Interesting article Keith, thanks!
     
  3. wylie

    wylie Moderator Staff Member

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    I don't know if it is a bias, but no matter the outcome of any situation, I look for the silver lining. Perhaps that is partly a head in the sand thing, where, when things don't go to plan, I ignore the downside and focus on what was good about the situation.

    We've had some very challenging situations over the years, so I choose to think of the positives I can find amongst the wreckage rather than dwell on the wreckage itself.

    That doesn't mean I'm pretending there could have been a better outcome, but I don't think dwelling on "what if" helps anyone. I guess that some people would say I'm a "glass half full" person and others would say I'm putting my head in the sand.
     
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  4. MTR

    MTR Well-Known Member Premium Member

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    That means you are very positive person, great trait IMO
     
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  5. Blacky

    Blacky Well-Known Member

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    I think everyone has some kind of biases (is that a bias in itself?).

    I love the anchoring bias. Esspecially in negotiations. If you want a pay rise mention some random meaningless number before starting. Its proven that number will stay with people and they will anchor to it - even if it is now meaningless to the conversation at hand.

    Im very aware of the outcome bias. I firmly believe that we never make a wrong decision. At the time, with the information available (and our perception of that information) we make the best decision we can (otherwise we wouldnt have made that decision). The outcome of the decision is usually based on how hard we have to work in order to achieve the outcome. A 'bad' decision will simply involve more work than a 'good' decision. But we will only know that after the fact.
    If we indeed make a 'good' decision - we are liable to believe that it was our good decision making skills - rather than actually looking at how we reached the decision in the first place (in order to be able to reach another good decision).

    Blacky
     
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  6. Bayview

    Bayview Well-Known Member

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    Where's the section for "I don't like humans"? :p
     
  7. Ace in the Hole

    Ace in the Hole Well-Known Member Premium Member

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    Everybody would have to exhibit some of these biases, we are human.
    The title says- Which do you suffer from?

    I relate with a few, 12 Overconfidence is one.
    However, I'd rather be overconfident with a positive attitude and have a go, rather than be what's considered normal or even under confident.
    I believe plenty more good has come from being overconfident than when I used to be highly reserved and of low confidence.
     
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  8. Leo2413

    Leo2413 Well-Known Member Premium Member

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    I don't see anything wrong with overconfidence. As long as there is substance to back it up, I think overconfidence is really important.
     
  9. Leo2413

    Leo2413 Well-Known Member Premium Member

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    Its OK, you just have to like real estate :D
     
  10. HUGH72

    HUGH72 Well-Known Member

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    Interesting post Keithj, I can relate to many of cognitive biases that effect decision making. Our own experiences influence our view of ourselves and the world around us.
     
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  11. willair

    willair Well-Known Member Premium Member

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    Very good lineup,,i like number ten,some people make up their mind on past experience with different strategies ,in the way the outcome is uncertain or known or just don't read newsprint for a while that also could come under no10,but more generally most come under risk management inbetween gains or losses,and the more one thinks they known works well until something no one thought happens then everything one thinks they know is useless...but that may well come down too my age and all the waters that have passed in life..

    [​IMG]
     
  12. BuyersAgent

    BuyersAgent Well-Known Member Business Member

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    21. The "I couldn't possibly"

    When you are convinced I couldn't possibly have any of those other biases :D
     
  13. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    My boss said that about me when I told everybody my niece wouldnt be on the Today show on Wednesday for her state cheerleading win - that news story it was replaced by the PM change (but I mentioned the PM change made me happy).
    Yep. I look for the positives in any situation.
    If you don't the world could get you down...
     
  14. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Great post @keithj.

    I've studied the mind, its function and flaws at length and found it startling how many of these biases are deep-seeded.

    Doing so has helped immensely by making me aware of my innate biases, how they work and how to minimise their impact but much like optical illusions (I prefer the term "Brain failures" – that's what they are), even an intellectual understanding of the bias/error etc doesn't completely eradicate the bias.

    That said, many of the above biases can be negated with a scientific (that is, evidence-based) world view. Unfortunately, few people seem to adopt such a framework.

    Overconfidence is the most pronounced (with intent) bias in my case. Placebo effect is another one.
     
  15. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Positive expectancy is one of mine....... :)

    It's well known for those that work with peops on goals work everyday that 95 % of our decisions........ Aren't

    Ta

    Rolf
     
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  16. MGF

    MGF Well-Known Member

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    I have a psychology degree and loved studying this stuff!

    One of the cool things about biases that is often missed (because bias sounds negative) is that they have positive and negatives sides.

    The sunk-cost fallacy for example - throwing good money after bad because you've already spent a big chunk of money. On the good side - things that are really difficult to achieve will almost always go through this phase! There will come a point when quitting appears correct but sunk cost keeps you going. It has enough positive results that we keep doing it.

    It is hard to accept the negative side of biases about ourselves however. I'm generally optimistic about people and situations and been burned as a result. Reining that in somewhat has led me to better decisions.

    Learning about sunk cost has helped me ditch unprofitable endeavours faster.
     
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  17. Perthguy

    Perthguy Well-Known Member

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    I definitely have 'optimism bias'. There was a really interesting segment on this on Redesign My Brian 2. Researchers tested Todd Sampson and found he had a quite extreme optimism bias. http://www.smh.com.au/entertainment...-adrenaline-junkies-mind-20150519-gh4ikz.html

    Mine not be that extreme, but it affects my decision making. The reason I like it is because it hasn't let me down so far ;) and I have made good decisions because of it that I would not have made if I didn't have it.

    http://content.time.com/time/health/article/0,8599,2074067,00.html
     
  18. JenW

    JenW Well-Known Member

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    I'm biased against my mother in law, but I don't think that affects my investment decisions ;)
     
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  19. Leo2413

    Leo2413 Well-Known Member Premium Member

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    I was at a magic show, when after one particularly amazing trick, someone screamed out, “wow, how did you do that.” I would tell you”, answered the magician predictably, “but then I’d have to kill you.” After a moments pause the same voice screamed out “can you tell my mother in law?” :D
     
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