The grizzled investor who’s ridden conviction trades all the way to zero suppresses the desire to confirm biases in favor of seeking out informed Devil’s Advocates, skeptics and proponents of the opposite side of the trade. Devil’s Advocates delight in probing the consensus or popular view for weaknesses, and exploring how and why the consensus or popular view might be riskier than advertised, or even completely, catastrophically wrong. If we want to avoid the dangers of confirmation bias and marrying our positions, Devil’s Advocates become our best friends. Hedges and Plan Bs arise from a simple question: what if I’m wrong?
Any challenge becomes a threat to our selfhood.Ĭonviction is good, but a hedge and a Plan B are even better. What may have started out as a calculated risk morphs into an all-or-nothing reflection of our identity. We all know the danger of marrying your position, that is, taking not just a financial stake but also an emotional stake that eventually becomes entwined with our identity. Confirmation bias thus generates a self-reinforcing feedback loop, as those shouting the loudest attract those who agree with them, rewarding their conviction with “likes.”
If we push our position and conviction to an extreme and shout it out loudly enough, we’ll attract those seeking to confirm their own biases. Taking a position with conviction empowers us, for by publicly espousing a forecast, prediction or position, we’re implicitly saying, “When events show I’m right, that will show I’m smarter than the average bear.” We all understand the psychologically soothing feeling when others heartily agree with us, and the frustration, anxiety and sense of being threatened we experience when our core positions are challenged.īut there’s more to it than just that. Of the many self-generated dangers investors face, few are more dangerous than confirmation bias, the comfort we experience seeking out views that confirm our own positions and our resistance to studying opposing views.Ĭonfirmation bias is both self-evident and complex. If those on the opposite side of the trade are viewed as threats rather than friends, it’s time to revise the analysis.
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