Wi-Ai and the Power of Confirmation
What has climate change got to do with financial decision making?
At the end of October 2021, Glasgow will host the COP 26 UN Climate Change Conference. News channels are full of stories about forest fires, flooding, rising sea levels and so on, which suggest that the task before them (and us) is of critical importance. However, there are many who refuse to accept the data and who firmly believe that global warming is a myth.
Aside from global warming, the same level of scepticism appears in commentary online and elsewhere about major issues ranging from election results to the efficacy of COVID vaccinations.
To many, the scale and structure of this kind of response suggests that the sceptics may well be prey to Confirmation Bias, a pervasive cognitive bias that causes people to seek out/interpret/recall information and material in a way which endorses their own standpoint, in this case maybe by reading conspiracy theories and similar material that circulates online about climate change and other topics. Meanwhile the conspiracy theorists claim that the opposite is true and that people who disagree are influenced by the “mainstream media”. In a sense both camps may have a point, even if one position is often phrased in inflammatory terms such as “brainwashing”: many of us, of whatever persuasion, do simply pick a perspective and then only read sources that support it.
Confirmation Bias is also a first cousin to False Consensus Effect, which causes people to see their own behavioural choices and judgments as being shared by many more people than is actually the case. Where we associate mainly with people who share our views and rarely encounter those who dispute them, we humans tend to consider that the world, for the most part, thinks the way we do.
Biases of many descriptions can affect us all and have an impact on a wide range of areas of our lives. In the world of financial decision making, for instance, there are a number of sub- conscious biases which can cause investors to make decisions that are self-sabotaging and seemingly irrational. Those who work as Directors or Senior Managers of businesses such as platforms or advisory firms are well aware of the frustration that such behaviour causes, in terms of poor outcomes for investors and wasted time and money in financial services businesses.
Confirmation Bias comes in, for example, when an investor who has accepted advice to invest in a diversified portfolio gets a bee in their bonnet that the only asset to be in at the moment is gold (or bitcoin or whatever), then goes online to look for information. Almost inevitably their searches will lead them to information which supports this. This may lead to hasty and inappropriate encashment of the current portfolio.
At Wi-Ai our task in this is to provide innovative behavioural software tools that financial services providers and advisers can, in turn, make available to their customers, thus helping them to recognise whether or not their judgment is skewed by bias. Armed with this knowledge they can take a step back and evaluate data less reactively, before making better informed decisions.
Sometimes, all it takes is a moment of clarity.
How do we do it? Get in touch at [email protected] to arrange a conversation.