Loading...
The Ostrich Effect is a cognitive bias that describes the tendency of individuals to avoid negative or threatening information by metaphorically burying their heads in the sand, akin to the behavior of an ostrich. The bias is named after the common (though incorrect) belief that ostriches hide from danger by burying their heads in the sand.
When faced with potentially distressing information, particularly regarding one's investments, health, or personal life, people might choose to ignore it rather than face the potential discomfort or anxiety it might cause. This avoidance is not due to a lack of awareness but rather a deliberate choice to minimize the perceived threat. Such avoidance can lead to ill-informed decision-making, as individuals focus on information that confirms their existing beliefs while ignoring contradictory evidence.
The Ostrich Effect can lead to poor decision-making as it results in a skewed perception of reality. For investors, this might mean missing out on opportunities to mitigate losses or capitalize on gains. In personal life, it might prevent timely interventions or solutions to problems, leading to more significant issues over time.
Counteracting the Ostrich Effect involves fostering an environment of open communication and encouraging regular engagement with information, even when it is uncomfortable or daunting. Solutions may include setting specific times to review relevant information, such as financial statements or health checks, and seeking diverse perspectives to counteract the bias.
The bias can sometimes be criticized for oversimplifying human behavior by attributing it primarily to avoidance, when avoidance might be driven by rational factors such as focusing on controllable aspects of a situation. Moreover, the name itself stems from a misunderstanding of animal behavior, which might contribute to misunderstanding the nuances of the phenomena in human behavior.
The 'Ostrich Effect': Selective Attention to Information in Negative Market Environments
Karlsson, N., Loewenstein, G., & Seppi, D. (2009)
*Review of Economics and Statistics*, 91(3), 523-536
The 'Ostrich Effect' and the Relationship between the Liquidity and the Yields of Financial Assets
Galai, D., & Sade, O. (2006)
*The Journal of Business*, 79(5), 2741-2759