What behavior often results from confirmation bias?

Confirmation bias refers to the tendency of individuals to search for, interpret, and remember information in a way that confirms their preexisting beliefs or hypotheses. This cognitive bias can significantly affect investment behavior.

When investors are influenced by confirmation bias, they tend to focus on information that supports their existing views while disregarding evidence that contradicts them. This often leads them to hold on to losing investments because they believe that the original reasons for their investment are still valid, despite contrary data. Rather than reevaluating their positions based on negative performance or unfavorable news, they may instead look for justifications to maintain their investments, hoping that the market will eventually prove them right.

In this way, confirmation bias can lead to irrational investment decisions, such as holding onto losing positions longer than warranted, which can exacerbate losses and hinder overall portfolio performance. The behavior reflects a reluctance to accept new information that should prompt reassessment, ultimately resulting in poorer investment outcomes.