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Basketball, Busted Brackets and Biases

Like many people, my parents fill out a bracket for the men’s national college basketball tournament each year. For as long as I can remember, they have always pulled for any school from the Atlantic Coast Conference (ACC) when that school is playing a non-ACC opponent in the tournament. That allegiance to the ACC manifests itself yearly in their bracket selections and this year was no exception. Each parent had all the ACC schools winning at least one game in the tournament regardless of the opponent or seeding. Then they had more ACC teams advancing deep into the tournament than what the “objective” sports show analysts had prognosticated.

My parents’ selections of potential winners were not based on comparing teams and conferences. Rather, it was rooted in familiarity. They only watch ACC basketball games during the season and therefore these teams are known quantities to them. This familiarity bias contributes to my parents selecting known ACC teams over unfamiliar opponents even when the opposition is favored to win.

This familiarity bias isn’t unique to my parents and college basketball tournaments.  Familiarity bias influences all of us to differing degrees from the purchases we make at the grocery store to the lodging we select when traveling.

In the investing world, this tendency towards the familiar is called home bias and involves people tending to invest more heavily or exclusively in their home country to the exclusion of investing in other parts of the world despite the diversification benefits.  One of our roles at Woodward Financial Advisors  is to minimize that home bias by offering objective investment advice and creating portfolios that are broadly diversified while considering the needs and risk tolerances of our clients.

As my busted basketball bracket limps into the final weekend, I don’t think you want me filling out future brackets for you, but if you have questions about investment management or how the professional financial advisors at Woodward Financial Advisors construct your portfolio, please contact us.

In disclosure, I am a UNC graduate a few times over and I had the Tar Heels bowing out to Wisconsin.  In really full disclosure, I have Dook beating Kentucky in the final game—hey, I lived with my parents for 18 years. Some of their ACC bias rubbed off on me.