Wednesday, January 14, 2009

Beware the Experts

Confirmation bias is a tendency to notice or interpret information that confirms your prior belief (and avoid info that would contradict those beliefs). I think the tendency to believe in financial market "experts" reflects this bias. We believe that people should be experts, so we pay attention to info that confirms this belief. I was reminded of this recently when someone asked me about whether it made sense to take money out of the stock market (my response: I don't really know, but my feeling is that research shows trying to time the market doesn't work out so well). This person pointed out that one of the cable news financial "experts" was recommending this strategy. Of course, this same expert was touting the strength of the market shortly before its fall (but most people don't tend to remember that).

Here's a list from Business Week of the worst predictions from 2008 - experts feature prominently.

1 comment:

  1. i found your blog are interesting i get more knowledge from your post.Thanks, My Blog is about Inventory Management Software i hope in the future i can be like you to. Blogging for give knowledge for people out there. Thanks for that i "add to favourite" your blog to read more in future i will referer x i mean your blog to others