This Is the Biggest Behavioral Bias Driving Investment Mistakes, Advisors Say
September 25, 2019 by Jeff Berman
Behavioral biases are among the most common drivers of investment missteps. The most common culprit? Being easily influenced by recent news events or experiences, according to new research sponsored by Charles Schwab Investment Management (CSIM) in collaboration with the Investments & Wealth Institute.
That specific bias — dubbed “recency bias” — was cited by 35% of advisors polled for the BeFi Barometer 2019 survey as a behavioral bias affecting their clients’ investment decisions, the companies said Monday. It was followed by loss aversion bias (playing it safe or accepting less risk than can be tolerated), cited by 26% of advisors.
Rounding out the top five were confirmation bias (clients seeking information that reinforces their perceptions) at 25% and familiarity/home bias (a preference to invest in familiar, especially U.S.-based companies) and anchoring bias (a tendency to focus on specific reference points when making investment decisions) at 24% each.