What type of bias when one tends to search for interpret favor and remember information supporting ones belief and views?

From:  https://www.verywell.com/what-is-a-confirmation-bias-2795024

Where do your beliefs and opinions come from? If you are like most people, you probably like to believe that your beliefs are the result of years of experience and objective analysis of the information you have available. The reality is that all of us are susceptible to a tricky problem known as a confirmation bias. While we like to imagine that our beliefs are rational, logical, and objective, the fact is that our ideas are often based on paying attention to the information that upholds our ideas and ignoring the information that challenges our existing beliefs.

What Is a Confirmation Bias?

A confirmation bias is a type of cognitive bias that involves favoring information that confirms previously existing beliefs or biases. For example, imagine that a person holds a belief that left-handed people are more creative than right-handed people. Whenever this person encounters a person that is both left-handed and creative, they place greater importance on this "evidence" supporting their already existing belief. This individual might even seek "proof" that further backs up this belief while discounting examples that do not support this idea.

Confirmation biases impact how people gather information, but they also influence how people interpret and recall information. For example, people who support or oppose a particular issue will not only seek information that supports their beliefs, they will also interpret news stories in a way that upholds their existing ideas and remember things in a way that also reinforces these attitudes.

Examples of Confirmation Biases in Action

Consider the debate over gun control. Sally is in support of gun control. She seeks out news stories and opinion pieces that reaffirm the need for limitations on gun ownership. When she hears stories about shootings in the media, she interprets them in a way that supports her existing beliefs.

Henry, on the other hand, is adamantly opposed to gun control. He seeks out news sources that are aligned with his position, and when he comes across news stories about shootings, he interprets them in a way that supports his current point of view.

The Impact of Confirmation Biases

A number of experiments conducted during the 1960s demonstrated that people have a tendency to seek information that confirms their existing beliefs. Unfortunately, this type of bias can prevent us from looking at situations objectively, can influence the decisions we make, and can lead to poor or faulty choices.

During an election season, for example, people tend to seek positive information that paints their favored candidates in a good light while looking for information that casts the opposing candidate in a negative light. By not seeking out objective facts, interpreting information in a way that only supports their existing beliefs, and only remembering details that uphold these beliefs, people often miss important information that might have otherwise influenced their decision on which candidate to support.

What Is Confirmation Bias?

Confirmation bias is a term from the field of cognitive psychology that describes how people naturally favor information that confirms their previously existing beliefs.

Experts in the field of behavioral finance find that this fundamental principle applies to investors in notable ways. Because investors seek out information that confirms their existing opinions and ignore facts or data that refutes them, they may skew the value of their decisions based on their own cognitive biases. This psychological phenomenon occurs when investors filter out potentially useful facts and opinions that don’t coincide with their preconceived notions.

Key Takeaways

• Confirmation bias is the tendency of human beings to actively search for, interpret, and retain information that matches their preconceived notions and beliefs.
• The confirmation bias concept comes from the field of cognitive psychology and has been adapted to behavioral finance.
• Confirmation bias flourishes because it's an efficient way to process information, it promotes self-esteem, and it eases stress by eliminating conflict and contradictions.
• Investors should be aware of their own tendency towards confirmation bias so that they can overcome poor decision-making, missing chances, and avoid falling prey to bubbles.
• Seeking out contrarian views and avoiding affirmative questions are two ways to counteract confirmation bias.

Understanding Confirmation Bias

Confirmation bias affects perceptions and decision-making in all aspects of life, but it can create particular problems for investors. When researching an investment, they might inadvertently look for or favor information that supports their preconceived notions about the asset or strategy and fail to register or to under-weigh any or data that presents different or contradictory ideas. The result is a one-sided view and a self-reinforcing loop. Confirmation bias can thus cause investors to make poor decisions, whether it’s in their choice of investments or their timing of trades.

Confirmation bias helps explain why investors do not always behave rationally and perhaps supports arguments that the market behaves inefficiently. The syndrome is a source of investor overconfidence and helps explain why the bulls tend to remain bullish and the bears tend to remain bearish regardless of what is happening in the market.

Types of Confirmation Bias

Confirmation bias can be broken down into several sub-categories. Here are some of the most common.

Biased Research

This sort of confirmation bias relates to making a decision or adopting a view and then seeking information that supports it. This can happen unconsciously: Even in the way a person searches for evidence or phrases a question can reflect the preference, and so yield the proof they want.

Biased Interpretation

This variety of confirmation bias relates to how people process and evaluate data. Typically, evidence that conflicts with preconceptions causes discomfort and so is ignored or given little consideration—while confirming evidence is accepted uncritically or at least more readily. This disparity in interpreting info explains why research so often fails to change people's opinions on issues.

Biased Recall

This type of confirmation bias relates to memory. Past experiences and events influence current thinking and behavior, of course. But people remember things in selective ways, and often that selectivity serves to back up current beliefs—as opposed to the current beliefs being shaped by the memories. In other words, we recall the past in a way that reinforces the present. Some theories also suggest that information confirming our biases is more likely to remain in our memories, and information contradicting them is more likely to be forgotten or repressed.

A related syndrome to confirmation bias is belief perseverance or persistence: the inability of people to change their own belief even upon receiving new information or facts that contradict or refute that belief. Actively resisting news that goes against what we already think or believe, in effect.

Why Does Confirmation Bias Exist?

What causes confirmation bias, and why do humans have it? Although it can cause problems, it seems to make life easier too. Below are a few reasons why.

It's Efficient

It's an information jungle out there, and it keeps getting thicker all the time in our digital media era. We don't have the time or the energy to evaluate everything equally to form unbiased decisions. By encouraging us to look for or accept certain types of info, confirmation bias frankly helps cut through the clutter. It's an efficient, if limited, way to edit evidence and process data.

It Helps Self-Esteem

People like to feel good about themselves—that they're intelligent, decent, and right. Discovering that they're incorrect makes people feel bad about themselves. Therefore, people will seek information that supports their existing opinions, decisions, and desires. In other words, confirmation bias is a confidence booster. It's no surprise that, while anyone can be prone to it, confirmation bias often can be found in anxious individuals with low self-esteem.

It Alleviates Stress

"The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function,” F. Scott Fitzgerald wrote in “The Crack-Up,” a 1936 essay. Ah, but for most people, maintaining a pair of contradictory beliefs causes cognitive dissonance—a state of mental distress and unease that often impedes functioning. To minimize this dissonance, confirmation bias kicks in. By reinforcing one set of facts—what we want to see, hear, or believe—it alleviates the paralyzing conflict.

Impact of Confirmation Bias on Investments

Confirmation bias can be particularly dangerous for investors. Reflecting the direct influence of desire on beliefs as it does, it causes irrational behavior—and investing is one area where emotion emphatically has no place.

While countless ways exist for confirmation bias to (adversely) affect investment decisions, here are three common effects.

Missing Chances

Confirmation bias encourages investors to remain preoccupied with their own prejudices and stay in their comfort zones. As a result, they might easily miss out on new (to them) strategies, products, and investment opportunities. They might cling to notions like "never dig into principal" or "never go into debt," even when their individual circumstances dictate that doing the opposite makes more financial sense.

Disregarding Diversification

Diversification is a technique that allocates investments across various financial instruments, industries, and asset classes that would each react differently to the same event. Although it mainly aims to reduce risk, it can maximize returns (by avoiding losses) as well. Confirmation bias can encourage investors to become obsessed with a few companies or a few investment types. This causes them to ignore diversification and concentrate their holdings in a single stock or asset class, thus exposing themselves to greater risk.

Being Victimized by Bubbles

Bubbles occur when prices for a particular asset or investment rise far above its real value in increasingly speculative trading. Since bubbles are all about investors buying "because everyone's doing it," people with confirmation bias are prone to invest more in asset bubbles, swayed by the consensus view—and ignoring any contrarian voices warning that the uptick is getting out of hand, that the elevated prices aren't justifiable or sustainable. So they're likely to incur a lot of financial damage when the bubble pops, as it inevitably does.

The speculative activity that inflates investment bubbles is part of another important concept in behavioral finance, called herd behavior or mentality. It states that people tend to mimic the financial actions of the majority, following the crowd, so to speak. Herding is notorious in the stock market as the cause behind dramatic rallies and sell-offs.

Example of Confirmation Bias

Suppose an investor hears a rumor that a company is on the verge of declaring bankruptcy. Based on this information, the investor considers selling the stock. When they go online to read the latest news about the company, they read only the articles that repeat the likely bankruptcy scenario and miss a story about a promising new product the company has just launched that is expected to increase sales. Instead of holding the stock, the investor sells it at a substantial loss—just before it turns around and climbs to an all-time high.

Overcoming Confirmation Bias

Seek contrary advice: The first step to overcoming confirmation bias is to have an awareness that it exists. Once an investor has gathered information that supports their opinions and beliefs about a particular investment, they should seek alternative ideas that challenge their point of view. It is good practice to make a list of the investment’s pros and cons and reassess it with an open mind.

Avoid affirmative questions: Investors should not ask questions that confirm their conclusions about an investment. For example, an investor who wants to buy a stock because it has a low price-earnings (P/E) ratio would be affirming their findings if they only asked their financial advisor about the company’s valuation. A better approach would be to ask the broker for more information about the stock, which can be pieced together to form an unbiased conclusion.

What are the 3 types of confirmation bias?

What is an example of confirmation bias?

What do you mean by confirmation bias?

What are the 4 biases?