Financial Word of the Day: Confirmation Bias
- Larry Jones
- 8 minutes ago
- 2 min read
Definition of Confirmation Bias
Confirmation bias is our natural tendency to search for, believe, and remember information that supports what we already think is true—while ignoring anything that challenges our opinion. When it shows up in money decisions, it can push us into bad investments, risky purchases, or just plain stubborn financial mistakes because we convince ourselves we’re already right.
Why Confirmation Bias Matters in Personal Finance
If you’ve ever said, “I just know this investment is going to explode,” and then went digging for only good news to back up your hunch, congratulations—you’ve met confirmation bias. It feels like confidence, but it’s often just our brain cheering for the wrong team because we like our own opinion more than the truth.
Confirmation bias prevents us from:
Seeing real financial risks
Asking smart questions
Adapting when the facts change
Learning from mistakes
In other words, it can make us lose money while still feeling “right.” That’s a terrible trade.
Real-Life Example of Confirmation Bias
Imagine you’re excited about a new tech stock. You search online and immediately click on the articles that say things like, “This could be the next Apple!” You scroll past headlines with warnings. You bookmark only the bullish posts, then tell your friend, “Everyone agrees this company will explode.”
But “everyone” didn’t agree—you just filtered the internet to only show praise. That’s confirmation bias steering your money like a blind Uber driver.
The Psychology Behind Confirmation Bias
Our brains hate being wrong. They’re wired to protect our ego more than our wallet. When something challenges our belief—like a warning about an investment—we feel discomfort. So we avoid it. That’s why confirmation bias feels good in the moment… and terrible when the bills come due.
How to Beat Confirmation Bias in Money Decisions
Here’s the good news: you don’t have to be a financial genius to avoid this trap. You just need discipline and a little humility.
Try these simple tools:
Look for disconfirming evidence. Actively search for reasons you might be wrong.
Play devil’s advocate. Ask yourself: “If this fails, why would it happen?”
Get opinions from people who disagree. Different perspectives aren’t threats—they’re expensive insurance against dumb decisions.
Use data, not emotion. Facts don’t care about our feelings… and our feelings don’t pay the bills.
Write down your reasons before buying. If they don’t hold up later, you’ll know exactly where you went wrong (and learn faster next time).
Final Takeaway
Confirmation bias tricks us into believing our financial instincts are flawless. Smart money isn’t about being right—it’s about being willing to change your mind when the facts demand it. Wealthy people adapt. Broke people defend their opinions. Choose which one you want to be.
Stay curious. Stay humble. And always double-check what you “just know.”
