The Ostrich Effect
The ostrich effect is avoiding information because it may be unpleasant. An investor who stops checking an account during a downturn illustrates this selective attention.
THE IDEA
The ostrich effect describes avoiding information that may cause psychological discomfort. The image of “burying” one’s head in the sand is a metaphor for that avoidance.
Investors who stop checking their accounts in a falling market illustrate the pattern. Less frequent checking may reduce the temptation to react impulsively to short-term losses, but avoiding information can also hide changes that deserve attention.
When to use it
Monitoring investment accounts during market volatility
Deciding how often to review business performance metrics
Reacting to critical feedback from a manager or peers
Managing personal health by scheduling regular checkups
FROM THEORY TO EVERYDAY LIFE
In practice
Investor Behavior in Bear Markets
During a prolonged market decline, an investor stops logging into their brokerage account or reading financial news. By avoiding exposure to the falling portfolio value, they feel less anxiety and are less tempted to sell at a loss, potentially benefiting from a long-term market recovery.
Avoiding Medical Checkups
A person with a family history of a serious illness delays scheduling a routine screening. They know early detection is key, but the fear of receiving bad news causes them to “bury their head in the sand,” ignoring the potential health risk.
A MOMENT TO REFLECT
Put it to work.
How might checking your investment portfolio less frequently affect your long-term financial decisions?
Can you think of a situation where ignoring negative information might be beneficial? When might it be harmful?
What strategies can you use to balance staying informed without falling prey to the ostrich effect?
CONTINUE THE CONVERSATION
Source texts
- 60 Cognitive Biases That Ruin Everything We Do by David Scott