Behavioral Finance for Syndicators and Fund Managers Part 2: Cognitive Biases - Conservatism...

In our quest to make sound investment decisions, our thinking can sometimes be clouded by cognitive biases. These biases, which are often unnoticed, can influence our decision-making process, leading to less than optimal outcomes. Let's explore three such biases: conservatism, confirmation, and control.

Conservatism bias refers to our tendency to hold onto our initial beliefs even when new information suggests we should update them. We often ignore new data, preferring to stick with our original analysis.

Next is the confirmation bias. Here, we actively seek out information that supports our existing beliefs while dismissing any data that contradicts them. This bias can make it hard to change our minds, even when the facts suggest we should.

Lastly, the control bias sees us overestimating our control over events. This can lead to overconfidence and risky investment decisions, such as over-concentrating our portfolio in a particular asset type or area.

By being aware of these biases, we can take steps to mitigate their impact and make better, more rational decisions.

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