A recent article in CFA Institute shares five steps that investors can take to mitigate emotional and cognitive biases and improve their decision-making process:
1. Acknowledge that emotional and cognitive biases exist: “We are more prone to these shortcomings than we like to think,” the article says, adding that raised awareness “helps us question our thought processes.”
2. Adopt meditation and mindfulness: Many top executives “have long practiced and vouched for the positive effects of mindfulness and meditation,” which include stress relief as well as improved concentration and focus.
3. “Keep a decision journal.” Memory is not reliable and primarily helps us “reconstruct an event rather than recall it.” The article suggests that we record the thoughts and analysis surrounding our decisions so that, over time, we can understand our recurring habits. “A key challenge,” it says, “is not to fixate on poor decisions or adopt a negative mindset when things go wrong. Reframe these emotions as helpful and corrective feedback that is required for learning and improving.”
4. “Appoint a devil’s advocate.” Turn to a trusted adviser or friend that can test your assumptions and uncover any “blind spots” in your decision-making process. “The purpose is to encourage you to take into account information that you may have otherwise failed to consider.”
5. Hire a coach. According to the article, “coaching is one of the best kept secrets at Wall Street hedge funds. Coaches work with traders to help them keep calm and increase their awareness of their behavior in high-stress situations.” By asking probing questions, a coach can encourage you to find “perspective that can lead to breakthrough ideas and solutions.”