Just don’t do it !

Nike so famously says, just do it. We humans are biased towards action. But in some situations the best choice could be inaction. In most situation we feel need to take action, regardless of whether it is a good idea or not. This is Action Bias at work.

Action Bias is visible in all walks of life. Sports, Business, Work, Healthcare, Finance, etc. Examples - When we choose to frequently change lane in a traffic jam. When we opt for surgery without clear idea of the benefits over other alternatives.

Let me elaborate on action bias in healthcare some more. My family doctor is now also my dear friend. Have been visiting him for past 30 years. He gives the least amount of medicines and only advises tests when absolutely necessary. Surgeries according to him should not be shortcut. They should always be last resort, when all other options are exhausted. When I was new to his style of working, I always felt he didn’t do enough and was slow to act. But I kept seeking his advice because it gave positive results. Over the years observing him, I have learnt the art of moderation between action and inaction.

Watch Football?

Did you know Goalkeepers' best chance to stop a penalty is to stay in the centre (33.3%), yet they jump 93.7% of times. Research shows, goalkeepers who dive to the right, stop the ball only 12.6% of the time. Those who dive to the left stop the ball 14.2%. So why do they jump? Because the norm is that goalkeepers should choose action (jumping to one of the sides) rather than inaction (staying in the center).

Imagine goal scored from penalty. Goalie jumping on either side would be seen as trying from his side. Fans would forgive him as unlucky. On the other hand, if the goalkeeper stays in the center and a goal is scored, it looks as if he did not do anything to stop the ball (remaining at his original location, the center).

Action Bias is injurious to your Financial Health!

Ever had an urge to :-

• Prematurely sell your Stocks or Mutual Funds with plan to buy lower.

• Stopping and Pausing Systematic Investment Plans temporarily till things improve.

• Checking & Reviewing your long term Investment Portfolio too often.

• Churning Stocks or Mutual Funds that are underperforming in short term.

• Booking Profits in Winners & Averaging Looser in Portfolio.

I can say from my experience that most often, all the above fine tuning does not work. Take action only when absolutely sure of the benefits. Till then don’t jump!