Which bias could lead an investor to favor information that supports their existing beliefs?

• A. Overconfidence bias
• B. Expectation bias
• C. Loss aversion
• D. Herd behavior

Answer: (B)

The bias that leads an investor to favor information supporting their existing beliefs is known as expectation bias. This cognitive bias occurs when individuals rely on preconceived notions and ignore or undervalue information that contradicts those views. Investors influenced by expectation bias may seek out data that aligns with their expectations, disregarding any evidence that might challenge their beliefs. This can lead to poor decision-making, as the biased perception of information can distort their understanding of risks and potential outcomes.

Understanding expectation bias is crucial for investors, as it highlights the importance of seeking diverse perspectives and considering a range of data before making investment decisions. By recognizing this bias, investors can work towards a more balanced approach, ultimately enhancing their investment strategies.