BREAKING BIAS: Confirmation Bias, Overconfidence Bias

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    Have you ever been in a heated argument and suddenly pulled your phone from your pocket to search for something on Google that supports your argument? That’s confirmation bias at play.

Confirmation bias is the tendency of the human mind to search for, interpret, and prioritize information that confirms our preexisting beliefs, while ignoring or undervaluing information that contradicts those beliefs.



When I started investing, I found myself focusing on positive news articles that supported my viewpoint. I simply ignored the rest of the data and facts. Anything that contradicted my perspective caused cognitive stress, and it was so uncomfortable. This behavior led to significant losses.

Fixation: We should not cling to the same viewpoint. If something goes against our perspective, we need to consider it and validate it. We must develop a mindset that acknowledges we can't always be right and accept that we are flawed.


Overconfidence bias is when people believe they know more or they are better at something than they actually are. It's the tendency to overestimate your abilities, knowledge, or the accuracy of your predictions, even if the evidence doesn't support it.


Now consider this scenario: If I ask you to roll a dice, and if you roll a 1, you win 10%, but if you don’t roll a 1, you lose 10%, would you take this gambling offer based on your dice-rolling ability?

Any sane person would likely rethink before considering it. There’s another form of gambling similar to dice rolling, and it’s called futures and options in the stock market. People tend to believe they have more control over events than they actually do, which boosts their confidence in making predictions or decisions. Believe it or not, there are countless factors that influence the outcome, and your action is just one of many. Despite knowing this, 93% of traders lose money in the Indian stock market. The reason? Overconfidence bias.

Fixation:

Acknowledge that not all outcomes are predictable, and that uncertainty should be factored into decision-making. Being aware of the limitations of your knowledge can help reduce overconfidence.

Conclusion:

After going through numerous uncertain events, I realized i know very little and I have very little control over things and how uncertain our lives truly are. this ultimate realization made me to write this timeless quote: “The certainty of uncertainty is the reality.” True wisdom lies not in controlling everything, but in knowing what is within your control—and what is not.




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