Your portfolio might end up in the cemetery due to self-attribution bias

Your portfolio might end up in the cemetery due to self-attribution bias

Henil Shah
/ Categories: Trending, Mindshare

Behavioural finance is a burgeoning area in finance, and heuristics or biases are a component of it. In this post, we'll look at how self-attribution bias affects investors.

Heuristics or biases are one of the factors that influence the result of investments while investing. According to behavioural finance research, investors have a variety of biases that they take with them while investing. In this article, we will look at one such bias known as self-attribution bias, the consequences of which can be disastrous.

 

What exactly is self-attribution bias?

In the context of investing, self-attribution bias is a tendency in which investors attribute success to their actions and talents while refusing to accept poor investment outcomes as their own responsibility. This makes a difference since investors are less likely to learn from their mistakes and would never admit to the necessity for thorough research.

 

Assume an investor invests in an IT firm, but the stock price of the IT company falls soon after. In this case, investors would blame the buddy who told him about the firm rather than the CEO of that company for mismanaging the business or even the market itself for declining.

 

Let's take a look at another scenario. Let's imagine the investor this time invests in a banking stock and is successful since the stock price of that bank begins to rise as soon as he invests. Now, who would the investor attribute these profits to? As a result, he assigns this to himself. In this case, the investor claims they previously knew the business would be an excellent investment.

 

Carrying a self-attribution bias has a detrimental long-term consequence since it may undoubtedly lead to unfavourable results. As a result, while investing, try to be as impartial as possible.

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