"Through the Mattress Springs" by Angie; Wikimedia Commons

Let’s take a look at a problem known as the confirmatory bias. It’s a shortcut in thinking in which people just pay attention to the information that confirms what they already believe, whether or not the information is true.

This happens most often for emotionally-significant issues and for established beliefs. For example, if I have a strong belief that banks are dangerous, I’ll probably keep my money in my mattress and selectively attend to all of the evidence in the news that will affirm my belief (for example, “See, just look at the fraudulent practices they engaged in at Bank X!” and “Look how long the FDIC’s Failed Bank List is!”).

At the same time, I’ll interpret vague or ambiguous information as supporting my position. I’ll also discredit information that does not fit with my belief.

The main problem with the confirmatory bias is that it leads to overconfidence, which, in turn, allows us to make disastrous decisions.

For instance, if I’m completely confident that my mattress beats the local savings and loan, there may be devastating consequences:

  1. I would lose out on any potential to earn interest on my money.
  2. My money would lose its “buying power” as inflation occurs over time.
  3. Someone might break into my house and steal my money.
  4. My back might hurt because the money might make my mattress lumpy.
  5. If no one knows where my money is, my mattress (and all of the hundred-dollar bills hidden inside) might end up being sold at a garage sale for $5 when I die.

The bottom line is that if you are unwilling to consider data that disconfirms your own beliefs, you could be missing out on opportunities that would ultimately help you achieve your financial goals.

What is one thing you can do to make sure you are letting in all of the information you need, rather than just the information you like?