Certified Financial Management Specialist Practice Exam

Which bias involves favoring information that confirms existing beliefs?

1. Self-Attribution

2. Confirmation Bias

3. Yield Curve

4. Corporate Taxation

The correct answer is: Confirmation Bias

The concept of confirmation bias refers to the tendency for individuals to seek out, interpret, and remember information in a way that confirms their preexisting beliefs or hypotheses. This cognitive bias leads people to overlook or dismiss evidence that contradicts their views, thereby reinforcing their existing beliefs. In practice, confirmation bias can affect decision-making processes, as it limits the scope of information considered when evaluating a situation. For example, an investor who believes that a particular stock will perform well might pay more attention to favorable news about the company while ignoring reports that indicate potential issues. This can lead to a distorted understanding of reality and potentially poor decision-making. In contrast, the other choices pertain to different concepts. Self-attribution relates to how individuals credit their successes and failures, often attributing success to their abilities while blaming failures on external factors. The yield curve is a financial term that describes the relationship between interest rates and the maturity dates of debt securities, often used to gauge economic expectations. Corporate taxation refers to the policies and regulations governing how corporations are taxed on their income. None of these choices directly address the concept of favoring information that aligns with existing beliefs, which is explicitly defined as confirmation bias.