Which cognitive bias causes investors to overweight confirming information?

Confirmation bias is the cognitive bias that leads investors to give disproportionate weight to information that confirms their existing beliefs or hypotheses. This phenomenon can significantly impact investment decisions, as individuals may seek out or favor data that aligns with their preconceptions while disregarding contradictory evidence.

For investors, this means that if they have a positive outlook on a certain stock, they are more likely to notice and remember favorable news about that stock, further reinforcing their positive view. This can lead to poor decision-making, as ignoring negative information or contrary perspectives may prevent them from seeing the full picture and can result in significant financial losses if the investment does not perform as expected.

Understanding confirmation bias is crucial for market technicians and investors alike, as it helps them recognize the importance of evaluating all available data objectively rather than selectively. This acknowledgment can encourage a more balanced approach to market analysis and decision-making.