Confirmation bias in financial advice: why we seek validation, not the truth
- TEBI
- Aug 19
- 7 min read
Updated: Aug 20
New research on confirmation bias in financial advice shows we don’t always seek guidance to make better decisions — often, we’re just looking for someone to tell us what we want to hear.
Picture this: a client has just watched Bitcoin hit new highs and cryptocurrency "success stories" are dominating social media. They've already decided they want to allocate 30% of their pension pot to crypto and come to you for advice. When you explain the risks (extreme volatility, regulatory uncertainty, the lack of intrinsic value), they seem to tune out. But when they later speak to a friend who mentions someone who "made millions" trading crypto, they nod enthusiastically and feel vindicated in their original plan.
Sound familiar? According to new research from the University of Pennsylvania, this scenario illustrates a fundamental truth about human behaviour that most of us would prefer not to acknowledge: we don’t always seek advice to make better decisions. Sometimes, we’re simply looking for confirmation of what we already want to do — a tendency researchers describe as confirmation bias in financial advice, where people seek validation rather than objective guidance.
The advice-seeking paradox
For decades, academic research has operated on a straightforward assumption: people seek advice to improve their decision-making. This belief underpins everything from financial planning to management consulting, and it seems perfectly logical. After all, why would anyone waste time asking for input they didn't intend to use constructively?
But new evidence suggests this assumption may be fundamentally flawed. In a comprehensive study spanning five separate investigations, researchers Alexis Gordon and Maurice Schweitzer have documented what they term "motivated advice seeking" — the tendency for people to seek advice not to improve accuracy, but to receive reassurance and build confidence in their preferred choice.
The findings are striking. Across multiple studies involving real-life dilemmas and controlled experiments, the researchers found that people systematically choose advisers who they believe will support their existing preferences, frame their questions in ways that favour their preferred option, and rate advice more highly when it aligns with what they already want to do. This confirmation bias manifests in advice-seeking behaviour in ways researchers hadn't previously documented.
What the research reveals
The study's methodology was particularly robust, combining analysis of genuine advice requests posted on Reddit with controlled experiments involving participants facing real decisions. The results paint a consistent picture of human behaviour that challenges our assumptions about rational decision-making.
In one experiment, participants were 43% more likely to seek advice from someone they expected would recommend their preferred option. When asking for advice about actual dilemmas they were facing, people provided an average of 0.32 more reasons supporting their preferred choice compared to alternatives. Perhaps most tellingly, advisers were able to correctly identify what advice-seekers wanted to hear 63% of the time — and they obliged, recommending the preferred option 70% of the time.
The research also revealed that receiving preference-congruent advice significantly boosted people's confidence in their decisions, increased their satisfaction with the advice, and made them rate the advice as more useful — regardless of whether it actually improved the quality of their decision.
The confidence trap: confirmation bias in financial advice
These findings have profound implications for financial advice and investment decisions. The research suggests that when people seek financial guidance, they may unconsciously be looking for validation rather than objective assessment. Previous research has shown that clients tend to rate advisers more favourably when those advisers confirm their pre-existing beliefs.
Consider the typical investment consultation. A client might already be inclined toward a particular investment strategy — perhaps based on recent market performance, media coverage, or personal preferences. When seeking advice, they may unconsciously gravitate toward advisers whose views align with their existing inclinations, frame their questions in ways that highlight the benefits of their preferred approach, and give more weight to advice that confirms their initial instincts.
This creates what the researchers call a "confidence trap." Preference-congruent advice feels more valuable and increases satisfaction, but it may actually harm decision quality when someone's initial preference isn't optimal. This is particularly dangerous in financial planning, where poor investment decisions compound over time and the stakes are high.
Why this matters for investors
The implications for investment behaviour are significant. Think about common financial dilemmas where emotions run high:
Market timing decisions: An investor convinced that now is the right time to exit the market might seek out pessimistic forecasts and bearish commentary while dismissing bullish perspectives — not because the negative views are more accurate, but because they confirm the desired course of action. Research has repeatedly shown that market timing destroys long-term returns.
High-risk investments: Someone drawn to cryptocurrency or individual stock picking might seek advice from sources known to be enthusiastic about these strategies, while avoiding more conservative voices that might recommend diversified index funds.
Retirement planning: A person who wants to retire early might gravitate toward advisers who emphasise optimistic return assumptions and generous withdrawal rates, rather than those who stress the importance of conservative planning approaches. Here, confirmation bias in financial advice can push clients toward overly optimistic assumptions, leaving them exposed to serious risks if market conditions don’t cooperate.
In each case, the advice-seeker feels more confident and satisfied with the guidance they receive, but they may actually be making their financial future less secure.
How this plays out in investment advice
The financial services industry, perhaps inadvertently, may enable motivated advice seeking. Advisers often recognise what clients want to hear and may tailor their recommendations accordingly — not necessarily out of malice, but because client satisfaction and retention depend partly on delivering advice that feels valuable and affirming. This dynamic illustrates confirmation bias in financial advice, where reassurance often takes precedence over objectivity.
This dynamic helps explain some persistent puzzles in financial behaviour:
Why do investors continue to chase past performance despite overwhelming evidence that it doesn't predict future returns?
Why do people pay high fees for actively managed funds when low-cost index funds typically deliver better long-term results?
Why do sophisticated investors continue to engage in market timing despite repeated studies showing it destroys wealth?
The answer may be that investors aren't just buying investment products — they're buying confirmation of their existing beliefs and preferences. An adviser who recommends a hot fund or market timing strategy may be providing the psychological satisfaction of validation, even if the financial advice is suboptimal.
Protecting yourself from motivated advice seeking
Recognising this tendency is the first step toward better decision-making. Here are practical strategies for investors and advisers:
Before seeking advice, examine your motives. Ask yourself honestly: am I looking for the best possible guidance, or am I hoping someone will tell me what I want to hear? If you already have a strong preference, be especially wary of confirmation bias effects.
Seek out advisers who challenge your beliefs. Deliberately consult sources that might challenge your assumptions. If you're inclined toward aggressive investing, talk to conservative planners. If you favour individual stocks, speak with index fund advocates. The advice that feels uncomfortable might be the most valuable.
Structure requests neutrally. When asking for guidance, avoid loaded language that telegraphs your preferences. Instead of asking "Don't you think now is a good time to take profits?", try "What factors should I consider when deciding whether to rebalance my portfolio?"
Value advice that challenges your assumptions. Train yourself to appreciate guidance that makes you think differently, even if it doesn't feel as satisfying initially. The adviser who politely pushes back on your ideas may be providing more value than the one who enthusiastically agrees.
For advisers: provide genuinely objective guidance. Resist the temptation to tell clients what they want to hear. Build relationships based on delivering the best possible advice, not the most agreeable advice. Research shows that adviser misconduct tends to increase when commercial incentives outweigh client interests.
The broader implications for evidence-based investing
This research reinforces a fundamental principle of evidence-based investing: our intuitions and preferences are often poor guides to optimal decision-making. Just as investors need to overcome the temptation to chase performance or time markets, they also need to resist the urge to seek advice that simply validates their existing inclinations.
The most effective investment strategies — broad diversification, low costs, long-term thinking, and disciplined rebalancing — often feel boring or counterintuitive. They rarely provide the psychological satisfaction of confirmation or the excitement of speculation. But that's precisely why they work.
Similarly, the most valuable financial advice may be the kind that challenges your assumptions, forces you to consider alternatives, and prevents you from making emotionally driven decisions. It might not feel as satisfying in the moment, but research consistently shows it's more likely to lead to better long-term outcomes.
Conclusion
The research by Gordon and Schweitzer reveals an uncomfortable truth about human nature: we often seek advice not to improve our decisions, but to feel better about decisions we've already made. This tendency is particularly dangerous in financial planning, where the stakes are high and the costs of poor choices compound over time.
But awareness of this bias creates an opportunity. By recognising our tendency toward motivated advice seeking, we can take steps to seek out more objective guidance and make better decisions. Being aware of confirmation bias in financial advice helps investors avoid choices that feel reassuring in the moment but undermine long-term outcomes. The goal isn’t to eliminate our preferences and emotions entirely — that’s neither possible nor desirable — but to ensure they don’t systematically weaken our financial wellbeing.
The next time you find yourself seeking financial advice, pause and ask: am I looking for the best possible guidance, or am I just hoping someone will tell me what I want to hear? Your future self will thank you for choosing the former, even when it feels less satisfying in the moment.
After all, the purpose of good financial advice isn't to make you feel better about your decisions; it's to help you make decisions that will actually make your life better.
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