I know I opened a can of worms last month when I said ‘Banting’, so I might as well address a behavioural bias that is well affiliated: confirmation bias. We’ve touched on it before, but time to unpack.
It refers to one’s tendency to seek evidence confirming an already held opinion whilst avoiding anything which might upset your carefully constructed mental models.
Here’s an example: you’re a Banter, therefore you believe high fat, low carb is the way to go. You probably listen to a lot of Tim Noakes interviews, subscribe to Lose It! magazine and whenever you see an article which mentions something along the lines of ‘Soy is bad’ …; ‘Bread: the silent killer’; and ‘Why lard will make you happy’, you’ll probably read it. What are you doing?
You’re taking in information that will most likely confirm what you already believe. Counter to this, if you see or hear anything mentioning ‘Low-fat revolution … Red meat: the hearty killer’ you’ll probably ignore it. Why? Because you’ve already made up your mind that it’s not relevant. That’s why we believed the earth was flat for as long as we did!
Please know that I’m not judging: I cook with cream and butter so I’m half guilty, too. But I’m also able to laugh at myself (and others) when I see this bias in action.
If you’ve ever shopped for a house you’ll surely relate to this. Somehow, if the house has that sunken bath you’ve always wanted or an awesome entertainment area, you tend to ignore things like the roof that needs some work or the wooden window frames throughout that are going to drive you mad with ongoing maintenance.
I’m exaggerating – you don’t ignore these things, it’s just that their negative effect has less of an influence on you because you want to like the house. Besides – think of how much fun you’re going to have in that entertainment area!
Be mindful of these things. Always question your opinion by listening to counter arguments and try take the emotion out of big financial decisions. If you know you won’t be able to, take someone who can with you. Have me on speed dial!
Author: Gizelle Willows CA(SA) MCom Finance is Senior Lecturer in Financial Reporting at the University of Cape Town