Investors 10 Most Common Behavioral BiasesPosted on July 16, 2012Barry Ritholz (of The Big Picture and a Sunday Business columnist at The Washington Post) recently contributedInvestors ! most common mista"es to The Washington Post Business Section #uarterly investing section$ Its a commentary that he has been %or"ing on for a %hile & the ten to'ics are listed %ith lin"s to longer discussions of each common mista"e here$ I created my o%n investing (chec"list) (here) in res'onse to Barrys original list$ *or yet one more iteration of the theme+ I o,er my list of Investors 10 Most Common Behavioral Biases$There are a number of others+ of course+ and more %ill continue to be uncovered$But I thin" that these are the "ey ones$-our suggestions of im'ortant ones I have missed are %elcome$$ Confrmation Bias. We li"e to thin" that %e carefully gather and evaluate facts and data before coming to a conclusion$But %e dont$ Instead+ %e tend to su,er fromcon.rmation bias and thus reach a conclusion .rst$/nly thereafter do %e gather facts and see those facts insuch a %ay as to su''ort our 're0conceived conclusions$When a conclusion .ts %ith our desired narrative+ so much the better+ because narratives are crucial to ho% %e ma"e sense of reality$1$ Optimism Bias.This is a %ell0established bias in %hich someones sub2ectiveconfdence in their 2udgments is reliably greater than their ob2ectiveaccuracy. Indeed+ %e live in an overcon.dent+ 3a"e Wobegon %orld ((%here all the %omen are strong+ all the men are good0loo"ing+ and all the children are above average))$We are only correct about 4!5 of the time %hen %e are (665 sure$) *ully 675 of college 'rofessors believe they have above0average teaching s"ills (anyone %ho has gone to college %ill no doubt disagree %ith that)$ Since 4!5 of driverssay that their driving s"ills are above average+ I guess none of themdrive on the free%ay %hen I do$While 8!5 of high school students claim to have above0average leadershi' s"ills+ only 15 say they are belo% average+ no doubt taught by above average math teachers$ In a truly terrifying survey result+ 615 students said they %ere of good character and 865 said that their character %as better than most 'eo'le even though 185 of those same students admitted stealing from a store %ithin the 'rior year and 9!5 said they hadcheated on an e:am$ ;enture ca'italists are %ildly overcon.dent in their estimations of ho% li"ely their 'otential ventures are either to succeed or fail$ In a .nding that 'retty %ell sums things u'+ 4