R.P. Seawright of Above the Market recently released his list of “Investors’ 10 Most Common Behavioral Biases,” a valuable juxtaposition of most common investing mistakes with the behaviors and attitudes behind those same mistakes. This article is a series of expansions and explorations of each bias.
Investor Behavioral Bias #4: Self-Serving Bias
Why do you succeed? Why do you fail? How you answer these two questions may reveal your natural inclination towards or rejection of a self-serving bias. This is a hybrid bias between confirmation bias and optimism bias. Self-serving bias, or self-serving attribution bias (“SAB”) as it’s sometimes called, is an overconfident accreditation towards our own abilities with positive experiences (“I got an A on the test because calculus is easy for me.”) contrasted with an excuse-driven perspective towards negative experiences (“I got a C+ because the teacher’s questions are confusing and impossible to study for.”).
Self-serving biases express themselves in a variety of everyday life activities and responsibilities, including financial investing. (Investopedia) As Guido Baltussen, Senior Quantitive Investment Strategist at ING Investment Management aptly summarized with UK-based Investor Today, when it comes to investing, “good performances are more likely to be attributed to our investment skills, while poor performances are often associated with other factors: the self-serving bias.” (Investor Today) Why are your investments performing well? Why may your investments be underperforming? It can be easy to take credit for financial gain in your portfolio, but where is the “blame” to be laid during financial loss? Again, how you answer those questions may reveal the depth of your own self-serving bias.
Unfortunately, self-serving biases can be difficult for some financial investors to overcome. One of the best practices of any financial investor is to trust they hired the right financial advisor to help assist them towards financial independence. Trust your financial advisor to leverage their investing experience and insight into successful long-term financial gain. Financial investors who recognize a natural inclination towards a self-serving bias can best use their efforts to ask well-researched questions of their financial advisor to partner well together towards their financial success.