Accredited Wealth Management Advisor Practice Exam

What behavioral bias is demonstrated when an individual only seeks information that confirms their beliefs?

1. Framing

2. Confirmation bias

3. Status quo

4. Mental accounting

The correct answer is: Confirmation bias

Confirmation bias occurs when individuals tend to search for, interpret, and remember information in a way that confirms their pre-existing beliefs or hypotheses. This bias leads them to give disproportionately higher weight to evidence that supports their views while disregarding or minimizing evidence that contradicts them. This phenomenon is particularly significant in decision-making processes, as it can create a skewed perception of reality, impacting how an individual assesses information and makes judgments. In the context of finance and wealth management, confirmation bias can lead investors to favor information that supports their investment decisions and ignore warnings or evidence indicating those decisions may be flawed. Recognizing this bias is crucial for advisors and clients alike, as it can affect investment strategies and risk assessments, ultimately influencing financial outcomes. Understanding confirmation bias can help individuals make more balanced decisions by actively seeking out a variety of perspectives and data before concluding.