Behavioural biases can be amplified in a crisis

The narratives we tell ourselves can give us a false sense of what’s going to happen and can lead to flawed decision making, a topic Simon Russell, founder and director of Behavioural Finance Australia, explores in a new podcast.

These narratives come about a number of ways – commonly through peoples’ early experiences which can have an impact on future decision making, Russell notes. Click below to listen to the podcast or visit the podcast page here.

Confirmation bias can lead people to immunising themselves from new information and hunting for certain information that can confirm existing beliefs and expectations, Russell says in conversation with Investment Magazine’s Alex Proimos.

Salience is another significant influencing factor on decision making of investors in financial markets, Russell explores.

“How much somethings capture your attention than other things might not. Some things are more salient. Often these are the things that have happened most recently.

“We are responding to market moves and latest news cycle but how often do we go back to 100 year track record? Probably not often enough,” Russell says.

Particularly in a crisis where there is less precedent to draw from, behavioural biases can play a bigger role in peoples’ decision making.

Russell draws on examples including the investment decisions relating to commercial property and the divergent views that can be reached around when and if people start returning to offices.

“When we don’t know which narrative is right, each of them risks giving us a false sense or comfort that the one we have is right, whereas the reality probably is when we are facing uncertainty is when any belief we hold with high confidence is probably wrong and we need to factor in some reversion,” Russell says.