We’ve all been overwhelmed with the amount of data thrown at us from left, right and centre in the wake of the COVID-19 pandemic, whether related to the virus, vaccine, or policies surrounding both.
We source information on Google in addition to what we hear on the radio, see on TV, or talk to our doctors, families and friends about. Not only are we operating in an era of information overload, but we also find ourselves in a time where we are all searching for answers because we are feeling so uncertain and vulnerable. In most cases, we can quickly and easily find answers, but how do we know those are the correct answers?
When our brains are so overwhelmed with lots of information or complex information, it tries to simplify data or take mental shortcuts or judgements (heuristics). Have you ever used the rule of thumb? Our brains do this to help us rationalise the data and minimise the time and effort we spend solving problems. These shortcuts often create an over-reliance on possibly incorrect deductions, which may have been influenced by our behavioural biases.
These biases result from years and years of data processing in our brains and can be stronger based on the way we have been brought up or the environment we find ourselves in. I was able to find more than 70 biases that can be categorised into cognitive, emotional and social biases. Here are some biases that may be more prevalent in the wake of the Covid-19 pandemic. The first bias to be aware of is the confirmation bias, where we favour or seek information that confirms our existing beliefs. For example, whether you are for or against the vaccination, chances are you will be able to find information that supports your argument.
Pessimism bias is dangerous because it allows us to overestimate the chances of having a negative outcome – how many times have you expected a worse outcome from our family meetings with President Ramaphosa? When markets fell so drastically, there was much talk about a U-and not a V-shaped recovery – we all felt quite pessimistic at the time.
Spurred on by lively debate, many of us may have experienced the backfire effect, where our theories and thinking have been challenged, or evidence comes to the fore that contradicts our beliefs. As a result, it causes us to believe in them even more strongly. A believer in Crypto currencies may feel inclined to buy more Bitcoin after reading an article that contests its value.
We have all uttered the phrase “in my day,” or “when I was young,” or more recently, “before Covid”. This may indicate that you are experiencing the declinism effect, where the past is romanticised or remembered as better than it was and, sadly, the future is expected to be worse than it is likely to be, which could result in missing great, innovative investment opportunities.
The availability heuristic makes us favour information which most quickly and easily jumps to mind. We make decisions based on information easily retrieved from our mental storage compartment – a bit like always wearing the shirt on top of the pile in your cupboard because it is the most easily accessible. Perhaps you have recently heard someone having a bad experience with a Retirement Annuity resulting in you deciding not to invest in one. But what are the reasons for the “bad” Retirement Annuity, and are they applicable to your situation?
The bandwagon effect; everyone else is buying gold and therefore so must I.
It’s challenging to change a bias — our minds are hardwired to create these shortcuts to help us. The difficulty is that they may negatively affect our decision-making and problem-solving abilities, as well as our emotions and moods. Having an awareness of your biases can help you see beyond them and absorb information rationally. Now that you have processed even more information, have you considered the mental shortcuts you have taken in reading this article?