Are you Biased?

We are all biased!!

Yes, I said that out loud, we all are. It includes yours truly too because I am no exception.

Let’s define what bias means before we delve into different types of biases.

Wikipedia defines bias as “disproportionate weight in favor of or against an idea or thing, usually in a way that is closed-minded, prejudicial, or unfair”.

Biases stem from the way our brain is structured to help us. Our brain always tries to keep past experiences in mind, remembers what gives us pain or pleasure, what worked to give us recognition or what led to failure, and tries to make sense of the present and future decisions based on them.

So, the brain doesn’t recognize that it could be a bad thing for us. Biases make us irrational in our decisions and choices.

Now almost none of us can eliminate biases because its difficult to recognize the bias when you’re actually being biased because your brain tricks you into believing that what you’re doing is the right thing to do.

But what we can do is be aware of different biases that we’re susceptible to and try to improve our thought and decision-making process by trying to minimize the effect of biases.

Now let me boil down to a few biases with some examples to help you better understand them.

Association Bias: The beauty of an organ that is our brain works by a simple idea of association. Remember when you were taught alphabets how your parents & teachers used pictures of objects or things for you to associate with like A for Apple (caught you visualizing a red fruit that keeps the doctor away or I say the iconic brand of iPhones & iPad etc.)

See how that helped you or rather still helps you make sense of things? Now, this becomes a problem when we start associating things that happened in the past but have no connection to something happening currently or in the future.

Say the first stock you purchased was a technology stock and you did that in 1999 and earned handsome returns to lose it later. Every time after that you look at a tech stock you would have a difficult time to not remember past experience and associate with the same.

 

Incentive caused bias: “My doctor gave me 6 months to live. When I told him, I couldn’t pay the bills he gave me 6 more months” - Walther Matthau.

Notice how quickly things change for you when your incentive or self-interest is taken away? Never ask a barber if you need a haircut.

Similarly, the income of brokers is dependent on your excessive trading so they have to suggest you to trade. If someone’s income depends on you purchasing something, they’re most likely to persuade you in any form required.

It’s your responsibility to find what the truth is and decide for yourself. Think about what a person has in store if you make the transaction. This does not mean to stop trusting people but answer the questions and then make a decision.

 

Self-Deception Bias or Denial: The easiest person to fool is yourself. The simplest thing is to cheat yourself into believing something which is not true because it gives you a sense of comfort.

Our brain loves to conserve energy and be in its comfort zone. To seek this, it indulges into wishful thinking and tries to distort the reality to fit it in your mind as you want it to be.

It is helpful in the short term but the damage it does in the long term is immense. It eats out your limited time on earth and causes mental pain when confronted with reality.

The only person that loses in this activity is you. I have personally realized how much time I lost because of wishful thinking. It came to a point where I stopped doing anything productive and just trying to deny the reality in my mind.

In such situations a quick solution that comes in handy is talking to a close friend or family member who would be less biased because they might not be as invested in the situation as you’re.

They might help you think clearly and make a better judgment of the situation.

 

Dislike Bias: We form judgments about people and things very quickly. Sometimes even before we meet them.

This again stems to the fact that our brain helps create hypothetical situations and creates perceptions. Now this itself could create a strong liking or disliking of the same based on our beliefs.

We become so close-minded that we can’t change our mind whatsoever. This often leads to missing out on opportunities for earning and learning.

I personally missed a stock opportunity (doubling my investment in 6 months) because of strong disliking towards the promoter group which leads me to think and evaluate it clearly. I sin teen consider the company for investment.

That’s how strong bias can be.

 

We’ll continue with another part and few more biases in the next discussion.

 

Further reads:

Seeking Wisdom from Darwin to Munger

 

 (Disclaimer: we just spoke about incentive caused bias so I think I should mention this, I have registered to Amazon Affiliates program so if you purchase the books I recommend on my blogs through link I provide I would receive a very small sum. You wont b charged anything extra.)