The brain we have on the top of our head isn’t a flawless machine.
It is definitely powerful and comes in an easy to carry container. But it has its weaknesses.
In everyday terms, we call such weaknesses as ‘biases’. The good part is that while we cannot exchange our brains with other people nor can we upgrade it at a hardware shop, we can avoid mistakes that our biases cause by just taking notice of them.
Like if you are in getting into a boat, you would probably want to know about any holes in it before you start paddling. Right? Biases are such holes in our reasoning abilities and they can impair our decision making.
Simply noticing these holes isn’t enough. A boat will fill with water whether you are aware of a hole or not. But by being aware of the holes you can devise methods to patch them up.
In the same way, if you know how your biases (or faulty brain wiring) can hurt you, you will take precautionary action to safeguard yourself from them.
Here is an excellent presentation from leading investment writer Barry Ritholtz that he made at Agora’s conference this year in Vancouver. Ritholtz does a great job in explaining the biases that hurts most investors. You might relate to some of them. 🙂
Click on the image to see the presentation, or simply click here.