There’s a phenomenon in the investment world called anchor bias. Basically, it means that an investor holds onto a stock because they initially thought it would perform very well and when it starts to go down they don’t want to admit they were wrong and so they continue hanging on to it. The losses then compound turning a small loss into a huge loss. Investors have not stumbled upon a new psychological wonder of the human mind, many of us have an anchor bias. Basically, we don’t want to face the truth and accept an uncomfortable moment, admit we were wrong, think we are stupid, or feel ashamed, even though it would likely prevent a bigger calamity down the road.
This is dangerous! It may seem obvious, but we all need to be reminded of this because we are all at risk of making this foolish deal. This conversation came up over a dinner we were having recently with an investor friend of ours. He was sharing that because of all his time spent investing (well) he had become better at avoiding the anchor bias. He said he’s gotten good at forcing himself to listen to opposing views and changing his mind. These are such important skills to cultivate!
Surely there is another term that gamblers use to describe players who continue upping the ante on a bad hand because they can’t bear losing the money they have already invested or losing face by folding. There are probably countless names and terms for this phenomenon, which should further cue us into the need to safeguard against it damaging our lives.
Can you identify anything in your life that you have been throwing good energy after bad? Do you know in the back (or front!) of your mind that certain endeavors, projects, people, situations need to pivot or end? It is not easy to face these things, but it is easier to face now then when there is more damage and loss. A follow up question is what ways have you come up with to keep your mind flexible, open to new ideas, and eager to see your own errors.
These are the kinds of discussions and questions you can expect when you work with us. We can help you sift through these challenging questions. It’s not easy to do alone.
To staying flexible!
