Woo-Hoo!  Finally, the last day of cognitive biases in investing! Let’s dive right in… 

Self serving bias is pretty similar to the fundamental attribution error.  The Fundamental attribution error says that other peoples successes and failures are a direct result of their actions while our own are attributed to situational factors. The self serving bias is purely on a personal level. It states that our own successes are a factor of our actions but our failures can be justified by external factors. 

We all do this… I know I do.  If I play a round of golf and I score an 85 (great for me) then it’s ostensibly because I’m a skilled player and the next Tiger Woods (it has nothing to do with the fact that my ball hit the cart path and ricocheted off the rock and rolled into the hole).  However, if I play a round of golf and I score a 100 (not so great for me), then I may look to blame the high winds or my aching back or the poor course quality.  If you say you’ve never committed self serving bias, you either have a bad memory or are lying to yourself!

When we fall victim to self serving bias in investing, it tends to lead to overconfidence.  When we attribute great stock picks to our abilities and we don’t consider other external factors, we gain more confidence in our investment skills.  At the same time, when we pick a poor stock or fund and quickly look to blame anyone but ourselves, we don’t fully take responsibility for our mistakes.  In an extreme case, if we were to do this for every scenario, we would tell ourselves that we pick great stocks 100% of the time!  Similarly to the other cognitive biases, we can avoid self serving bias and its implications by being aware of it and honest with ourselves about our track record.  We all want to be great at whatever we do but the reality is NO one is perfect.  Have you ever caught youself comitting self serving bias?  What happened?    

I really hope this information has been helpful in developing your investments and personal knowledge!  Comments and feedback are always welcome.