Bob Seawright, who wrote a blurb for my book – Mindful Money, blogs over at Above the Market. Bob shares my passion for behavioral finance, and I’m picking up the gauntlet he threw down last week in his post “It’s not you. It’s me:”
“I have been working for some time on how we can try to counteract our bias blindness. I would be most interested in hearing what conclusions readers might have made in this regard, what processes readers have developed to deal with bias blindness, and what the results have been. Any takers?”
Yep! While none of the research on confirmation bias is new to Bob or me, I expect it may be new to you. More importantly, I think understanding how confirmation bias affects you can make a big difference in your financial life.
We humans are not rational creatures. It is difficult for us not to react to negative stimuli. When in the grip of fear or greed, we are hard-wired to make predictable financial mistakes. At the same time, as Bob points out, our brains filter reality in a manner that gives preference to data that confirms what we already believe, while minimizing data that contradicts those beliefs or makes us uncomfortable.
You need look no further than the World Wide Web to find a veritable echo-chamber of confirmation bias. We must be right to panic about our stock portfolio if so many other people on the internet share our point of view. Right? Nope. WRONG!
What can you do to counteract this “bias blindness” when the market is tanking (or soaring) and everything you read on social media confirms your greatest fears or wildest desires? I know one powerful tool that can help you maintain your long-term financial vision: a daily mindfulness practice.
And by a daily mindfulness practice, I mean meditation.
Yes, meditation! This notion often surprises folks, so let me explain. Meditation helps inoculate you against cognitive biases and supports the patience, discipline, and resilience you must have to realize your financial goals
How? By changing the hardware in your brain. According to an article on Scientific American, research suggests that when you meditate, you increase the mass of the decision center – the frontal cortex – of your brain. At the same time, you reduce the mass of your “fight or flight” center – the amygdala. This subtle shift increases your problem solving ability, improves emotional regulation, and reduces anxiety.
Meditation teachers encourage students to find a focal point, such as their breath, to help them slow down the frames of their life drama. Likewise, a comprehensive plan can serve as the focal point of your financial life, helping you counter your biases and ignore what you read on the internet and feel in the pit of your stomach. You can allow any worrisome thoughts to float by without holding onto them, while you remain focused on your plan.
What do you say, Bob? Do you think meditation could help counter confirmation bias? I do! Please confirm my bias!