Behavioral finance is fascinating. This is partly because the science can be illustrated with fun anecdotes. It is also because knowing about the field seems like it must confer some sort of advantage (we will return to this). But the main appeal is that we can feel smug about our own rationality while we learn about the ignorant stuff other people do.

The problem with this last part is that we all have biases and irrational behaviors. And one of those biases is the inability to recognize our biases. This “blind spot bias” is a bias in itself. And by definition, we can’t see our own.

You can’t avoid this bias, although at least you can take a little joy in the thought that pointing this out can make some people very angry. First, people don’t like to be told they are biased, because bias is clearly and almost universally recognized as bad. Second, the bias will only show up in things you care a lot about. If you are a Bears fan, you really will think the referees are biased against them. But you probably have no opinion about referees and the Cowboys. So, recognizing your bias is also connected with acknowledging that you are wrong about the things you most care about.

People who are more prone to think they are less biased than others are less accurate at evaluating their abilities relative to the abilities of others. They listen less to others’ advice and are less likely to learn from training that would help them make less biased judgments. They are even less likely to learn from their own research. Obviously, this is sub-optimal.

The first step in mitigating or managing this bias is to admit it is an issue. If you can acknowledge subconscious bias can influence your decision making, you can start the process of identifying the situations where this occurs and start figuring out a correction process.

You can’t unthink this bias. Psychology doesn’t work that way. You need to bring other viewpoints into the decision-making process. And this only works if there is a diversity of opinions (“diversity” is another word that will make some people mad). If all you do is talk to people with similar views, you will just become more entrenched. And if you take a look at the preponderance of middle-aged men in grey suits and ties at your next work gathering, you will hopefully recognize the problem.

Talk to people from different age groups, different cultures, different universities, and different interests. Or don’t. You need to decide if you want to get better or continue to think you have no bias. Up to you.

Disclaimer

This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith and any related legal, tax, accounting, or other material considerations. To the extent that the reader has any questions regarding the applicability of any specific issue discussed above to their specific portfolio or situation, prospective investors are encouraged to contact HTAA or consult with the professional advisor of their choosing.

Except where otherwise indicated, the information contained in this article is based on matters as they exist as of the date of preparation of such material and not as of the date of distribution of any future date. Recipients should not rely on this material in making any future investment decision.