UBS On-Air: Conversations Behavioral Finance: Action Bias 101
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May 29, 2024 Justin Waring, a Senior Total Wealth Strategist at the UBS Chief Investment Office, joins the discussion on the often-overlooked action bias in investing. He and Katie Williams delve into how emotional reactions can derail smart financial decisions and emphasize the importance of a long-term perspective. They share strategies to combat impulse decisions and illustrate how structured planning can enhance investment outcomes. Waring also highlights the psychological benefits of financial products like annuities, particularly for those nearing retirement.
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Action Bias Defined
- Action bias is the urge to act on new information, even without control over the situation.
- It's an instinctive intuition that action is better than inaction, even without full understanding of consequences.
Action Bias Examples
- A soccer goalie's instinct is to dive during a penalty kick, despite statistics favoring staying in place.
- Similarly, in traffic, we feel compelled to change lanes or honk, even if it doesn't improve the situation.
Action Bias in Investing
- Action bias, an intuitive survival response, can lead to investment underperformance.
- It's often triggered by fear of loss, particularly during crises, as shown by a 25-year Galbar study.