The Effect of Confirmation Bias on Investor Decision-making and Profitability
Whitney, Morgan A
Whitney, Morgan A
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Abstract
Established investment theory assumes that the investor makes informed, unbiased, and well-judged decisions. However, studies in behavioral economics have illuminated that people are highly irrational. Among numerous, pervasive cognitive errors that impact decision-making is confirmation bias. This bias results from seeking information that solely reinforces one’s existing beliefs while avoiding contradictory facts. This attempt to maintain mental comfort leads to an inaccurate assessment of risk. Thus, a comprehensive literature review and meta-analysis of existing studies reveal that confirmation bias and related mental errors correlate negatively with investment profitability.
Description
Undergraduate
Date
2022-01-01