Acknowledging Our Biases

In reading Burton Malkiel’s Random Walk Down Wall Street, I came across an important insight that I felt obligated to share.

“Psychologists have long identified a tendency for individuals to be fooled by the illusion that they have some control over situations where, in fact, none exists.”

Malkiel goes on to explain multiple experiments where average humans were consistently tricked into thinking they had control over completely arbitrary outcomes.

Malkiel explains, “It is this illusion of control that can lead investors to see trends that do not exist or to believe that they can spot a stock-price pattern that will predict future prices.”

Long story short, most people do not even begin to understand probability or their own intellectual shortcomings. Our egos trick us into thinking we are above average investors, when all statistics point to that probably not being the case.

And that’s just the tip of the iceberg. There are countless other cognitive biases plaguing your decision-making on a daily basis. I could probably exclusively blog about this phenomenon for all of 2016 and still not cover all of them.

So what can you do? There are two very basic steps.

1. Learn the Subject - Dedicate some time to regularly study the most common cognitive biases and challenge yourself to acknowledge an example of your guilt. It shouldn’t be an exercise in putting yourself down, rather an opportunity to improve your communication and decision-making skills. While at times tedious, it can pay dividends across many subjects.
2. Practice Humility - You will never become an unbiased, unfeeling robot, so don’t act like you’re anywhere close. When you first start to study cognitive biases, you’ll first identify them in others. This can lead to an inflated sense of self, which can be dangerous from a social perspective. A humble manner will allow you to take a fair view of yourself and endear you to others.

It’s a constant battle, but worth the fight.

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