Self-attribution bias could lead your portfolio towards a graveyard
Behavioural finance is one of the growing fields in finance and heuristic or bias is one of the part of it. In this article, we would be understanding the impact of self-attribution bias on investors.
While investing, various things affect the outcome of investments and heuristics or biases is one such thing. According to the studies of behavioural finance, there are a lot of biases that investors carry while investing. In this article, we would be dealing with one such bias called self-attribution bias, the outcome of which might lead to devasting results.
What is self-attribution bias?
In terms of investing, self-attribution bias is a tendency where investors accredit success to their own actions and abilities while refusing to accept the poor investing outcome as their fault.
This does make a difference since investors are less likely to learn from their mistakes and would never acknowledge that they need to be well informed. Let’s say an investor invests in an IT company, but soon after he invests the stock prices of the IT company start falling. So, in this scenario investors rather than blaming the CEO of that company for mismanaging the business or even the market itself for heading downwards, they would blame the friend who told him about the company.
Now let’s look at another scenario. Let’s say this time the investor invests in a banking stock and he gets successful as the stock price of that bank starts rising as soon as he invests. Now to whom would the investor accredit these gains? So, here he attributes to himself. In this scenario, the investor believes that they already knew that the company would prove to be a good investment.
Carrying a self-attribution bias does have a negative impact in the long run as it can certainly lead to unfavourable outcomes. Therefore, while you invest become as objective as possible.
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