Did you know that as a property investors we can sometimes be our own worst enemy?

It’s not because of the decisions we make, the opportunities we consider or the investments we miss out on, but rather, it’s because of the way we think. That’s because we’re subject to cognitive biases — the way our brains sneakily convince us to make decisions that aren’t always in our best interests.

Cognitive biases may convince us to spend more, save less, and feel more confident in our decisions than perhaps we should. And the scary thing is, for the most part, we’re powerless against them. Here’s a look at some of the most common forms:

Confirmation Bias

People tend to search for information that confirms their view of the world and ignore what doesn’t fit. In an uncertain world, we love to be right because it helps us make sense of things. We do this automatically, because it’s easier to see where new pieces fit into the picture puzzle we are working on, rather than imagining a new picture.

For example, if we believe that a particular type of property or a specific region will make for good investing, then we tend to only seek out news and information that supports that position.

One way to counter confirmation bias is to look for reasons your strategies could be wrong, rather than right.

Anchoring Bias

We have a tendency to use anchors or reference points to make decisions and evaluations, and sometimes these lead us astray.

Anchoring explains why you'll pay $6 for an hour of parking after seeing $10 at a car park down the street. The first number you see, especially when it’s a price that comes up in negotiation, colours any that come after it. A high anchor influences you to spend more than you normally would.

Property marketers, estate agents and car sales people use this principle all the time. They start with a high asking price and then you feel good when you extract a discount from them. Whether we like it or not, our minds keep referring back to that initial figure.

Awareness Bias

How are your investments performing – are you happy with the results you’re getting? There’s a chance that even if they’re not doing so well, you may not recognise it.

In fact, it’s been shown the poorest performers in all arenas of life are the least aware of their own incompetence. Lacking the capacity to realise how badly a task is performing is known as the Dunning- Kruger effect.

Positivity Bias

Many people view residential real estate positively, considering it an asset class through which they can grow their wealth – and they continue to view it in this light, even if their investments fail to prosper. In the face of lack of capital growth, prolonged vacancies or inflated expenses, they still continue to believe that their investment will turn the corner “one day.”

Positivity bias can stand in the way of an investor taking action to rectify the situation.

Negativity Bias

Just as some investors can be overly positive, some have the tendency to put emphasis on negative experiences rather than positive ones. People with this bias feel that ‘bad’ is stronger than ‘good’ and will perceive threats more than opportunities in a given situation.

Psychologists argue it's an evolutionary adaptation - it's better to mistake a rock for a bear than a bear for a rock. You can minimise your risks and maximise your upside if you educate yourself and become financially fluent, follow a proven strategy and get a good team around you.

The Bottom Line

We all want to think we are rational and biases are things that affect other people. However, our brains are designed with blind spots and one of their clever tricks is to confer on us the comforting delusion that we, personally, do not have any biases. This is why so many of us are not only bad with money, but make the same mistakes over and over again. We're blind to our blindness.

Michael Yardney, a director of Metropole Property Strategists, is best-selling author, one of Australia's leading experts in wealth creation through property and writes the Property Update blog.