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“Sometimes I wonder if men and women really suit each other. Perhaps they should live next door and just visit now and then.” (Katharine Hepburn)

All of us sometimes make decisions that are not in our best interests. This is because we are affected by psychological biases that affect how we act.

A lot of academic research has now been done on this. More studies are also finding that some of these issues are more likely to affect men, while others are more common in women.

For instance, a paper published recently by three Sri Lankan academics found that:

“Females tend to follow other investors in investment decisions. On the other hand, the effect of overconfidence on investment decision-making was found to be significantly stronger for male than female investors.”

This is not revolutionary. Other studies have shown the same thing: that men tend to overestimate their own abilities, while women are prone to a “herd” mentality and investing with the crowd.

Being aware

Most people won’t find this surprising. Men and women tend to show similar behavioural traits in many settings.

Since men like to feel that they are taking action when a problem arises, they often overestimate their ability to deal with issues. Women, on the other hand, tend to like to talk a problem through and get confirmation from others that they are doing the right thing.

Of course, not all men or all women behave exactly this way. These are generalisations.

But if we understand that we might be predisposed to certain behaviours, we can be aware of when we do act this way. That allows us to do something about it.

Know your limits

If we believe we can identify which investments are going to outperform next, for example, we might frequently want to change our portfolios. But, in reality, nobody can persistently predict what is going to happen in the short term. It is much better to let your investments develop over the long term.

If you are prone to overestimating your investment skills, there are some steps you can take:

• Get a different view. People who are overconfident usually support that feeling by only considering information that supports what they already think. So force yourself to find an opposing opinion and think about what would happen in a worst case scenario.
• Know when you’ve made a mistake. When we suffer from overconfidence, we tend to blame others when we end up being wrong. We struggle to accept that we made an error. But doing so is the only way to learn.  
• Get help. Overconfident people like to act alone. They think that they are always the best person to handle any situation. But having the support of a financial adviser will significantly lower the risk of making mistakes. A good adviser can ask the right questions, present different opinions, and make sure you appreciate your mistakes.

Empower yourself

On the other hand, we might be one of those people who is only comfortable making investment decisions when we know other people are already doing the same thing.

And there are three simple ways to address this too:

• Don’t take short cuts. Doing what the crowd is doing feels easy. If other people are already acting a certain way, there’s comfort in going along. But nothing can replace doing your own research, your own analysis, and coming to a decision that is best for your own situation.  
• Understand what your options are. When you are well informed, you are less likely to be influenced by other people’s choices.  
• Get support. Those who go along with the crowd are often looking for confirmation that they are doing the right thing. If others are doing it, that means it must be okay. But having a financial adviser to ask the right questions and provide useful insights can give the same comfort, and probably with much better outcomes.

Take emotion out of your investment decisions with professional investment advice!