• Blog
    Our Blog

You and Your Biases: The Blind Spot Bias Within

August 17, 2018 — I continue today with my periodic review of investors’ most dangerous instinct-driven biases. Today, I want to talk about blind spot bias. It’s perhaps the biggest bias around, because it explains why we still fall for all the rest of them (such as recency and familiarity, where we  favor people, places and events that are more recent or familiar to us) even once we’ve learned how they trick us. 

What is it? Blind spot bias occurs when you can objectively assess others’ behavioral biases, but you cannot recognize your own. This can cause you to overestimate your luck or talent at anything from money management to driving skills to on-the-job performance. It even leads us to assume we’re not as susceptible to behavioral biases as most other people are.   

When is it helpful? Blind spot bias helps you avoid over-analyzing your every imperfection. It helps you tell yourself, “I can do this,” even when others may have their doubts.

When is it harmful? It’s hard enough to root out all your deep-seated biases once you’re aware of them, let alone the ones you’re in denial over. If you’re subject to invisible biases, you’re likely to mistake illogical investment decisions as rational acts, to your financial detriment.

How to overcome? The best way to overcome your own blind spots is to recruit someone else to look for them, and (this part is important!) believe them when they tell you what’s going on. That “someone else” needs to know what to look for, and be candid with you when they see a blind spot in action. Remember, your own instincts will want to deliver a different narrative. You’ll have to disregard yourself and heed the outside advice you’re receiving. A spouse or similar close relationship might help. But a second opinion from an informed and independent financial advisor can also come in especially handy.

In short, as you familiarize yourself with other behavioral biases that can trip up well-intended investors, make sure you start by taking a good look in the mirror for the biggest bias of all.

By John A. Frisch, CPA, CFP, PFS, PPC

Trending Personal Finance News

white