Preferential Bias

As a recent student of a stock market course I came across an interesting concept regarding trading psychology that actually can be applied to life in general. It’s called preferential bias. It means that once investors develop a preference for a particular trade, they sometimes will distort additional information to support their view. It can cause an otherwise conscientious investor to ignore how a stock is really performing. They search for opinions that agree with their own, ignoring or discounting those that disagree. It comes from a natural human instinct to impose patterns and predict our world. Sometimes this can be helpful but if you’re unaware of it, it can often be detrimental. Objectivity is necessary in the stock market and in life.

Can you relate? Does it sound familiar? I’ve seen this especially in people’s opinions regarding politics and religion. It’s what I attribute to the extreme polarization of the right and left. People’s preferential biases can cause them to put blinders on, only seeing or acknowledging the information that supports their viewpoint. They seek out and surround themselves with people whose opinions match their own, reinforcing and strengthening their preconceptions.

In religion, it can be down right dangerous. Preferential bias can lead to extremism or fanaticism. The guys that flew the airplanes into the twin towers on 9/11 didn’t just wake up one morning and decide to be terrorists. Years earlier someone taught them something that they developed a preferential bias for. They surrounded themselves with others with the same bias. They ignored all outside information and perhaps their own intuition that told them that the ideology they were buying into wasn’t right. As time went by they got deeper and deeper into it, becoming more and more extreme and well, you know how that ended. An opinion or belief evolved into a preferential bias which evolved into radical fanaticism which ultimately became deadly.

Of course I am not suggesting that we refrain from having opinions. What I am suggesting is what the stock market experts teach. Be aware of the human tendency for preferential bias. None of us are immune to it. We need to keep ourselves from distorting or ignoring information out there that doesn’t support our views. An unexamined life is not worth living and awareness is the key to keeping ourselves on track.