A Dangerous Case of Affirmation Bias

Affirmation Bias – The tendency to search for and favor data that confirms your prior perception.

Firstly of this yr, I used to be satisfied that the US Federal Reserve would begin climbing rates of interest sooner slightly than later and that US Treasury bond yields would rise accordingly. Because the yr progressed, I felt that the Fed was overlooking the potential improve and stickiness of inflation – transitory, actually? – and that the yield on the 10-year UST would hit 2%. By the tip of the yr on the very newest. Even when bond yields stayed low, I felt positive that the market pricing was incorrect and located many articles that agreed with me, boosting my perception additional. As yields started to fall, my frustrations grew, and I began to imagine {that a} ‘bond tantrum’ would possible happen inside weeks with yields hovering to the degrees I anticipated. Nothing occurred and when the yield on the 10-year UST fell to round 1.25% in mid-July, I threw within the towel. And to make issues even worse, for years I traded company and authorities bonds for a residing on behalf of a variety of banks. If I had made this yr’s name at any of these banks, I’d have been job looking by Autumn.

The issue with affirmation bias is that you just grow to be more and more cussed together with your outlook with any value motion that strikes in opposition to your place mistaken in your view. This may result in different deadly buying and selling errors together with eradicating your cease loss or doubling down. Subsequent yr I’ll study to be humbler and attempt to all the time learn, correctly, the alternative argument to my view and be sincere sufficient with myself to confess when I’m mistaken.

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