Chart of the Day: Cognitive Bias

Today’s Chart of the Day from PageTear was shared by Charlie Bilello. It shows 15 different Cognitive Biases, their definition, and examples.

Cognitive Bias: A psychological term for how we process information, perceive others, and make decisions.

Nearly every decision we make is based on our previous perceptions, memories, and beliefs. Since we don’t have unlimited memories, we often succumb to irrational decisions based on limited information. As investment managers, we fight to limit these biases when investing. This is why we recognize and study them, to help limit their influence in order to make better decisions. As an example, one is Confirmation Bias, where you favor information that agrees with your opinions or beliefs. As professionals, we recognize this risk, so we take deliberate steps to explore new ideas, concepts, and investments.