Real Or Fake News? How Confirmation Bias Can Affect Your Wealth
ValueWalk.com Jun 23, 2020
Last year, financial advisers identified confirmation bias as the third most significant behavioral bias affecting their clients’ investment decisions. How can you keep confirmation bias from creeping into your investment strategy?
In 2018, former New York mayor Rudolph Giuliani, serving as President Trump’s attorney, made headlines when he commented that President Trump should not have to submit to an interview by special counsel Robert Mueller as part of the Russia investigation. “Truth isn’t truth,” Giuliani said in an interview with NBC’s Meet the Press, causing host Chuck Todd to react with incredulity. The controversial quote went on to lead a Yale Law School librarian’s list of the most notable quotes of the year.
Despite what you may think of Giuliani or his comment, his assertion that people have different versions of the truth holds some merit. Confirmation bias, defined as the tendency to seek information that reinforces a person’s pre-existing beliefs, suggests that people may not always be objective, or think critically, before accepting information as fact.
Let’s take an example from recent coverage of President Trump’s rally in Tulsa, Oklahoma. What is “true” about the reason why attendance at the event seemed lower than anticipated? Was it that protesters blocked the entrances and warnings by the media of exposure to COVID-19 kept people away? Was it because TikTok users and K-pop fans successfully mounted a campaign to horde tickets to the event?
Or was it because the Tulsa Fire Department miscounted the attendees, giving the impression that rally-goers filled less than a third of the BOK Center’s capacity, while campaign officials recorded roughly double the number of people who passed through its metal detectors?
In this situation, your “truth” may depend on the sources of information you trust. Conservatives may favor reporting by Fox News or Breitbart, while liberals may believe outlets like CNN or the New York Times.
But maybe you don’t trust media reports of any kind. Studies suggest that constant challenges to the validity of traditional news outlets has denigrated its authority, creating opportunities for non-journalistic outlets to take their place and encourage the spread ideologically extreme, false or misleading content through social media. When social media users choose to filter what they see in their feed based on their values and beliefs, the potential for confirmation bias increases.
Is it really "fake news?"
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