There is a funny story about an analyst who knew about a company in and out. He had visited the plants, met the management(multiple times) and kept track of their financial performance like a hawk. Besides this, he was also ‘aware’ & kept abreast with the dynamics of the sector the company operated in. He strongly felt that he had information and insights on multiple levels, and it gave him the confidence of being an expert of the sector and especially the company. However, after a few months the company went bankrupt and he had surprisingly not envisioned this fate of the company!
This story highlights that despite having so much ‘information’ about the company, the analyst could not form the right opinions or take the right decisions.
In this month’s edition, we discuss about Information Bias – the delusion that more information guarantees better decisions. Under the influence of the Information Bias, we tend to be in a constant quest to search for and hoard more and more information, even though it may be noise. We believe that more information empowers us to take better decisions. However, additional information may only clog our minds. Also, wrong information assimilated and acted upon can have disastrous consequences. The natural consequence of the information bias is also the illusion of knowledge which in turn makes us more overconfident.
Thus, in life or investing, we must note and remember these few broad guidelines when dealing with more and more information.
1). Ensure that there is a quest to not obtain massive quantity of information but also quality. There is a high probability of coming across superfluous information.
2). Focus more on the bare facts and work with solid and relevant information. More information does not lead to better decisions. Spend more time in objective and critical thinking.
Thus, let us not get crushed under the burden of information overload!
Let’s watch this video where Rolf Dobelli explains us more about the Information Bias and how not to be a victim of the same.
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