What’s in the blog?
Confirmation bias makes us believe only what we already think is true, especially in money matters. It narrows our perspective, influences our financial choices, and blocks better opportunities. This blog reveals how to spot and overcome this mental trap to make smarter, more balanced wealth decisions.
Table of Contents
We search for one thing online, and then we start seeing ads, articles, and videos around the same thing. This happens with all of us, right? And, we say it’s all an algorithm.
What if I told you this is just partially true?
What if you’re not just being shown what the algorithm wants, but also what your mind wants to see?
That pattern of repeatedly encountering the same opinions isn’t just digital design; it’s psychological, too. Confirmation bias!
Imagine reading a very convincing article stating that real estate is the best investment. Suddenly, you’ll start coming across other articles, videos, and news confirming the same. Not only this, you’ll end up having a conversation with someone who believes the same. This is confirmation bias in play, where you encounter the opinion that your mind wants you to see.
Confirmation bias makes us see only what supports our existing belief and this mental bias can sabotage our wealth creation.
In this blog, I’ll walk you through how this bias works, how it affects your finances, and simple ways to challenge your thinking so you can make smarter, balanced financial choices.
What is Confirmation Bias?
Confirmation bias is the tendency of our brain to seek out information that supports what we already believe and filter out anything that challenges it.
This bias is a dangerous thing as it limits our growth by keeping us stuck in the loop of what we already know and believe.
When it comes to finances, it can keep you stuck in outdated financial habits (let’s say keeping all your money locked in FDs). It makes you blind to better opportunities that don’t conform to your existing beliefs.
3 Subtle Ways Confirmation Bias Affects Your Finances
Confirmation bias, just like other biases in behavioral finance, works very subtly to impact our financial decisions. We make financial decisions irrationally without realizing that our own minds are playing tricks with us.
Here are the 3 subtle ways in which confirmation bias may be affecting your financial decisions without you realizing it.
You Stick to What Feels Safe
In my experience of around two decades in the personal finance field, I’ve seen people stick to fixed deposits, gold, and real estate by default. This is not because these are the best options, but because they are ‘familiar’.
- People completely ignore the fact that FD returns often lose to inflation.
- They overlook how gold prices can dip or remain stagnant for years.
When you stick to what feels safe and comfortable, you miss the chance to spot better opportunities. People sticking to traditional methods of FDs, golds, and real estate often miss the power of mutual funds, equities, or new age asset classes like REITs, which can serve their financial goals better.
You ignore the Other Side of the Story
Believe me, it’s really tough to make someone with confirmation bias see the other side of the story. Talk to someone who believes stock markets are risky. They’ll tell you all the stories of stock market crashes. And, it’s not their fault. Their mind filters out the opinions and facts that don’t conform to their existing beliefs.
Markets do fluctuate, but historically, markets have grown wealth over time.
When you ignore one side of the story completely, you lose the chance to make rational decisions. You won’t be able to compare two options and pick the best for you unless you are open to seeing both pros and cons of any given option.
You Blindly Follow Trends or Simply Miss the Bus
Confirmation bias works worst when something is trending or in vogue. Because everyone around is doing something, we tend to ignore anything that talks differently.
Remember the crypto boom or NFT? Experts were talking with logic and experience, but the crowd ignored such warnings. People were just focused on positive stories that reconfirmed their bias. And, this is true even for those who form a negative opinion about something without seeing the whole picture.
Confirmation bias on any side is dangerous. It makes you either follow trends blindly or miss out on opportunities that are new and not in line with your existing knowledge.
How to Break Free from Confirmation Bias in Money Matters
Confirmation bias is natural, but with little awareness and willingness, we can break free from it. Let us see how you can actually overcome your confirmation bias and have balanced views on money matters.
Challenge What You Believe
If you want to do away with confirmation bias, start actively seeking opinions that differ from your beliefs.
Suppose you strongly believe in keeping your money safe in FDs rather than risking it in the stock market. You should start searching for the risks of putting money in FDs and the rewards of investing in stocks.
Basically, if you have a very positive impression about something, search for its cons, and if you think negatively about something, find its pros. It’s all about seeing both sides of the coin and creating a balanced view, which leads to balanced financial decisions.
Diversify Your Source of Information
Relying too heavily on one source of information leads to confirmation bias. You should never rely on one news channel, website, YouTube channel, a friend, or an advisor because every source comes with its own biases.
Don’t spread yourself too thin, but make sure to mix up your sources of information. Read books, talk to an experienced advisor, follow a finance coach, do your market research, and listen to opposing views.
The more angles you see, the clearer the picture becomes for you.
Think in Probabilities, Not Absolutes
When you enter the finance space, you should know that nothing is guaranteed here. When we talk about growth or when we talk about risks, we talk about possibilities.
Wealth creation is not about being right ‘every time’. It’s about increasing the probability of growth. No investment is 100% safe, and no percentage of growth is guaranteed. You need to start thinking from the angle of risk vs.reward to make informed financial choices.
You’ll find positive and negative points about everything you search in the finance field. You need to learn to think in probabilities and create a balanced view.
Get a Finance Coach or a Money Mentor
A lot of the time, what we need to get free from our biased or one-sided thinking is just a nudge. Someone who is trained to keep their confirmation bias aside and think rationally about money matters can make you think rationally just by asking the right question.
Traditionally, we have been taking financial suggestions from our fathers, brothers or relatives, and friends. And what we get is a biased opinion because they don’t know better. Having a finance coach or a money mentor can take your financial life notches above.
Keep Emotions in Check
When it comes to money matters, let your logic and analytical skills take the driver’s seat.
Before you make any financial decisions, pause and check if you are reacting emotionally or thinking logically. Focus on facts and figures, not feelings. Typically, when we say we ‘feel’ a certain money decision is right or wrong, it’s our confirmation bias doing the talking.
When you start thinking rationally, you automatically push confirmation or any kind of bias to the back burner.
My Take
Confirmation bias is natural, but it is necessary to work on it as it’s not simply a mindset but a money block.
Before making any financial decisions, you should pause and ask yourself if you are looking at the complete picture or just the part your mind wants you to see. Being aware of your biases and having the willingness to overcome them can create the difference between being financially stuck or financially free.
If you ever need a supporting hand or a coach to ask you the right question and guide you on the path to financial freedom, MoneyAnna and the team are always here.
Frequently asked questions (FAQ)
No. Confirmation bias affects decision-making power in every aspect of life as it limits our view and prevents us from seeing the full picture.
The most effective way to avoid confirmation bias is to seek views that are different from your beliefs. Contrary opinions might feel uncomfortable, but they help you think more critically.
Social media and algorithms working in the digital space increase confirmation bias by bringing the same viewpoint as ours in front of us repeatedly.
If you find yourself avoiding opposing views or only reading things that make you feel “right,” you’re likely in the grip of confirmation bias.
Yes! An unbiased advisor can spot your blind spots and challenge your thinking with data.
