Investors, Beware the Pitfalls of Too Much Information

You may think you're taking in a stream of financial facts, but there's no way you can absorb everything at once.

If you're thirsty for financial news, you have plenty of gushing media fonts from which to drink. Consider the most popular fire hose of financial info: CNBC. Switch on the channel and at any given moment you may see four wonks expounding, three tickers streaming, two hosts a-hosting and exchange rates for the Indian rupee. And the hundreds of sources spewing financial factoids on the Internet can be equally overwhelming. Does this information help us make better investment choices, or does it just fool us into thinking we can?

It appears that the wiring in our brains enjoys the stimulation but processes it poorly. Even though you may think you're absorbing it all, there's no way you can take in everything at once, says Daniel Simons, a cognitive psychologist and coauthor, with Christopher Chabris, of The Invisible Gorilla: And Other Ways Our Intuitions Deceive Us (Crown, $27). "Attention is inherently selective—we can only take in a thin slice," says Simons. Absorbing so much information is difficult, and often it can't be processed properly. Chabris says the mind has a tendency to equate information, such as facts, with knowledge (expertise), which gives you "a tremendous illusion of knowledge."

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Bob Frick
Senior Editor, Kiplinger's Personal Finance