Understanding Cognitive Biases in Investment Decisions PPT

Cognitive biases significantly impact decision-making processes in business and investment contexts. This PPT slide, part of the 29-slide Building Blocks of Behavioral Strategy PowerPoint presentation, outlines 3 specific biases: Conservatism Bias, Base Rate Neglect, and Confirmation Bias.

Conservatism Bias occurs when individuals give excessive weight to pre-existing information, leading to a reluctance to adapt to new data. This bias can slow decision-making as stakeholders may focus too heavily on historical data rather than current insights. It suggests that decision-makers should critically assess the relevance and accuracy of new information before integrating it into their strategies.

Base Rate Neglect is described as the tendency to favor new information over established data. This can lead to poor judgment, particularly when individuals ignore statistical realities in favor of anecdotal evidence. The example provided illustrates how physicians might misinterpret probabilities based on new test results, highlighting the risk of overlooking foundational data in favor of more recent, but less reliable information.

Confirmation Bias is the final bias discussed, which manifests as a selective search for evidence that supports existing beliefs while dismissing contradictory information. This can lead to significant financial losses, as illustrated by the example of an investor who sells stocks based on rumors without verifying the underlying facts.

Overall, these biases can cause investors to make decisions based on subjective factors rather than objective analysis. Recognizing and mitigating these biases is crucial for improving decision-making quality and achieving better business outcomes.

EXPLORE MORE SLIDES FROM THIS PRESENTATION

EXPLORE MORE PRESENTATIONS ON

Decision Making Behavioral Economics Cognitive Bias Behavioral Strategy