Cognitive dissonance often leads investors to what mistake?

Cognitive dissonance refers to the psychological discomfort experienced when an individual holds two or more contradictory beliefs, values, or ideas simultaneously. In the context of investing, this phenomenon can lead to a significant mistake: ignoring evidence that contradicts one's beliefs.

When investors develop a particular outlook or belief about a stock or the market, they may subconsciously resist information that challenges or contradicts that belief. This can lead to poor decision-making, as they may dismiss crucial data that could indicate a shift in market dynamics or the fundamental value of an investment. By ignoring such evidence, investors are not able to adjust their strategies or beliefs in response to changing conditions, ultimately hindering their ability to make sound investment decisions.

This cognitive bias can maintain their existing investment positions, even when new information suggests it is prudent to adjust their views. This behavior exemplifies how psychological factors can significantly impact financial decision-making.