Years ago, my girlfriend – and now wife – pointed out that from time-to-time, I could come across as a bit of a know-it-all. I asked for a few examples which she had helpfully cataloged, and from that point forward I worked on *not* coming across that way. At the same time though, I became acutely aware of others that were know-it-alls, and nearly all of them were male and all of them were clearly overconfident. It wasn’t that they weren’t intelligent, but rather that no one can know it all, a fact that was lost on many of them.

Psychologists have identified overconfidence as a cognitive bias, or mental shortcut we use that can lead us astray, and studies have shown overconfidence bias is more common among males*. When overconfidence bias shows up in the investing arena, it is typically harmful to returns. Investors that are overconfident tend to trade more, leading to increased trading fees and capital gains. Further, overconfidence bias is often linked with confirmation bias in which the investor only seeks out information that confirms his or her existing opinions. As a result, the investor doesn’t take all information into account in making investment decisions and often hangs on to poor investments longer than he or she should. Studies have shown that female investors as a group outperform male investors, and the studies’ authors have attributed the difference in performance to the prevalence of overconfidence bias among males.

At the opposite end of the spectrum, women are more likely to experience Bag Lady Syndrome. Bag Lady Syndrome is the fear one won’t have sufficient assets to live a dignified retirement. To the outside observer, the fear often seems highly irrational because many who exhibit it have substantial portfolios. While from a planning perspective, Bag Lady Syndrome is positive in that it often leads to higher savings rates, the downside is that it keeps clients from enjoying the benefits of years of savings and hard work.

In our work doing financial planning for couples, we find that setting financial goals and working over the course of years to achieve those goals is often challenging. The fact that men and women tend to be impacted by different cognitive biases makes it more so. We have found the best way to deal with these challenges is to identify your own biases and those of your partner. While you can’t change the biases, recognizing them when they come into play and understanding the biases of your partner helps both to minimize the negative impact of the biases and to reduce stress and disagreement between one another.

*For more information on cognitive biases, see these newsletters.