Which bias is likely to cause an investor to prefer familiar investment options?

The preference for familiar investment options is primarily driven by familiarity bias. This bias refers to the tendency of investors to favor investments they know well or have experience with, often leading them to overlook potentially superior investment opportunities that are less familiar. Familiarity can provide a sense of comfort and reduce perceived risk, as individuals often believe they have a better understanding of insights and fundamentals behind familiar securities or markets.

For example, an investor may prefer stocks from companies they have followed for years or from their home country, even if market conditions or company performance may suggest considering other, less familiar options might be more beneficial. This can limit their investment choices and affect their portfolio diversification.

In contrast, the other biases mentioned do not specifically relate to this preference for familiar investment choices. Aversion bias typically involves a reluctance to take on risk or to make changes in investment decisions due to fear of losses. Confirmation bias involves seeking out information that confirms one's existing beliefs while ignoring contradictory data. Overconfidence bias reflects an inflated belief in one’s own knowledge or ability to predict market trends. While these biases can lead to poor investment decisions, they do not directly explain the tendency to prefer familiar investments in the same way that familiarity bias does.