New Post has been published on UNDERVALUED STOCKS
New Post has been published on https://www.undervaluedstocks.info/commitment-bias/
People do not like being regarded by others as inconsistent. When a person commits publicly to a particular point of view, commitment bias likely will exert a powerful influence on subsequent beliefs and behavior.
Commitment bias reflects the tendency of people to have their current and future beliefs remain consistent with their past beliefs. To be inconsistent now with one’s past implies that earlier beliefs were wrong either in part or in total. Being wrong is a threat to one’s sense of self-worth.
There are many examples of inconsistency creating problems for people. The more someone changes their point of view, the less trustworthy they seem. For example, politicians have lost elections for having inconsistent views over time.
The greater the commitment, the more urgent the desire to remain consistent. A privately held belief does not trigger commitment bias as strongly as a belief boldly proclaimed to the public. A weakly held belief does not influence the mind as much as a strongly held belief.
It is easy to see how commitment bias could cause trouble for investors. Investing involves making high-stakes decisions under uncertain conditions. Putting money to work in an investment creates an immediate commitment to the thought processes that led to the investment decision. The commitment will make it more difficult to determine the best time to sell and move on to another opportunity.
A possible cure to commitment bias is to remember the words widely attributed to John Maynard Keynes. Supposedly, someone once confronted Mr. Keynes that he had changed his mind regarding some matter, to which Mr. Keynes allegedly replied, “When the facts change, I change my mind. What do you do, sir?”
In short, recognize that new information may warrant new beliefs and give yourself permission to adjust accordingly.
