Investing term

What is Narrative bias?

Believing the better story over the better data.

Narrative bias is the pull to believe a compelling story over the duller data. A vivid tale about a company's future can override the unglamorous numbers that actually determine returns. Markets love narratives, and they routinely overprice exciting stories and underprice boring-but-solid businesses — which is exactly where disciplined, numbers-first investors find their edge.

For example

A thrilling "this will change the world" story lifts a money-losing stock far above what its finances justify — narrative beating data, until it doesn't.

Narrative bias is taught hands-on in Stage 12 — Investor Psychology: FOMO, Panic & Biases.

See the lesson →

Related terms

AnchoringLetting one earlier number — like the price you paid — drive your judgment about a current decision.Base rateThe long-run average probability of an event, before you weight any recent evidence.Confirmation biasReading the things that agree with you and ignoring the things that don't.Disposition effectSelling winners too early to lock in gains and holding losers too long to avoid realizing the loss.
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