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#10 - The Bias Blind Spot: Exploring and Refuting Common Investor Behavioral Biases

Investor Behaviors

As the saying goes, “People don’t know what they don’t know.” This leads us to the final investor behavioral bias that sometimes affects investors: the Bias Blind Spot, the inability to recognize our own tendency towards a particular behavioral bias or biases. It may even be easy for us to identify and criticize other behavioral biases in other investors, such the Planning Fallacy, Confirmation Bias, or Herding.

Our Bias Blind Spot fails to recognize our own investment habits that coincide with an behavioral bias. We may know the danger of each potential investor behavioral bias and yet, we still fall victim due to our lack of self-awareness as an investor. Unfortunately, our tendency to ignore our biases extend far beyond financial investing.

Studies show that we as humans tend to foster a fundamental bias against other people’s biases. Researchers from Carnegie Mellon, Mellon University, the City University London, Boston University and the University of Colorado in Boulder created a measurement method of determining a person’s level of bias towards others and themselves. (Management Science) Study results showed that only one out of 661 adults admits to being more biased than their peers. This lack of self-awareness pervades many socio-economic decisions, including financial investment.

The Bias Blind Spot may be the most difficult investor behavioral bias to overcome. Removing our bias blind spot may begin with the wisdom offered by  Amazon CEO Jeff Bezos: people who are right a lot of the time are people who often change their minds. (Signal v. Noise) R.P. Seawright shared another fantastic article on the top ten ways to deal with investor behavioral biases in which he specifically addressed overcoming your bias blind spot. I highly recommend reviewing Seawright’s advice as you consider how your own investment habits may reflect a bias you were previously unaware even existed.