The ostrich effect is a cognitive bias where individuals tend to avoid negative but useful information to escape psychological discomfort. This term originates from a myth that ostriches bury their heads in sand to evade danger. Research indicates that people often refrain from checking distressing information, such as financial losses or health issues, preferring instead to remain oblivious to potential dangers or drawbacks.
In the context of finance, many investors demonstrate the ostrich effect by avoiding checking their bank account balances after making significant purchases, due to the anxiety and discomfort that negative information may bring.
To overcome the ostrich effect, individuals should consciously seek out complete information, including potential downsides, to make informed decisions. Setting regular intervals to review important metrics can help mitigate the tendency to avoid unpleasant information.