March
Madness is not just a three-week basketball-palooza. It is a classic example of
the cognitive biases that derail investors year after year. Here are four of the most egregious ones:
1. Overconfidence Bias
Ask anyone
why they picked a certain team to go deep in the tournament and you will get a
confident, well-reasoned answer. They watched three games this season. They
read a column about the point guard. Their cousin went to that school. The
coach is hot right now. They did well last year.
This is
overconfidence bias in its purest form — the tendency to overestimate the
accuracy of our predictions based on thin or anecdotal evidence. Behavioral
economists have documented this bias extensively. Behavioral psychologist,
Daniel Kahneman, described how people consistently overestimate the precision
of their forecasts, especially in complex systems with many interacting
variables.
Basketball,
like markets, is exactly that kind of system. A star player rolls his ankle in
warmups. An underdog catches fire from three. A referee misses a call. The
outcome is partly skill and partly chaos — and yet tens of millions of people
fill out brackets with supreme conviction. Yet no one has ever predicted all 67
games correctly in the same year. In fact, out of 36 million brackets completed
on the major online sites in the 2026, NOT ONE bracket remained perfect by the
44th game of the 67 game tournament. And there are still four rounds
to go.
Investors do
the same thing. We read a few earnings reports, catch a segment on financial
television, and proceed to make high conviction bets on individual stocks. We
forget that we are competing against professionals who do this 12 hours a day
with resources and computing power we cannot imagine. The bracket reminds us:
confidence and competence are not the same thing.
For many
years, Warren Buffett offered $1 billion to anyone who could pick a perfect NCAA
bracket and never once paid up. Now Kalshi, the prediction market site is made the same $1 billion offer. They already
know they won’t have to pay up in 2026.
2. Recency Bias: Why Last Year's Champion
Gets Too Much Love
In bracket
psychology, recent events loom far larger than a full body of evidence would
justify. The defending champion University of Florida Gators were a No.1 seed
in this year’s tournament and a heavy favorite to make the Final Four. Instead,
they got knocked out by No.9 seed, University of Iowa in only the second round.
University of Nebraska started the season 20-0 and then dropped seven of their
last 13 games heading into the post-season. They fell to a No.4 seed and
millions of bracketeers overlooked them as a contender. Yet here are the
Huskers in the Sweet 16 having just knocked off Vanderbilt, champions of the
highly competitive Southeastern Conference.
Recency bias
is equally destructive in investing. When markets are rising, investors pile
in, assuming the good times will last indefinitely. When they correct, panic
selling takes over. We let the last six months of data override twenty years of
historical context.
The data on
this is sobering. Dalbar's annual Quantitative Analysis of Investor Behavior
consistently shows that average investors dramatically underperform the indices
they invest in — not because the funds are bad, but because investors buy high
and sell low, chasing recent performance. They are filling out their financial
brackets based on last week's box scores.
3. Confirmation Bias: Rooting for Your Pick
to Be Right
Once you
have committed to a bracket pick, something strange happens. You start finding
evidence that supports it everywhere. TV analyst Charles Barkley calls your
team a “sleeper to watch” and it feels like vindication. But when pundit Seth
Greenberg questions them, you instantly dismiss his take on your team, even if
his argument is stronger. You are no longer evaluating information objectively
— you are prosecuting a case for your predetermined conclusion.
Confirmation
bias is one of the most dangerous land mines in investing. Once we own a stock,
we unconsciously filter news through the lens of ownership. Good earnings
confirm our genius. Bad news gets rationalized as temporary. We stop asking
"should I own this?" and start asking "why should I continue to
own this?" — a subtle but devastating shift.
Before you
finalize a bracket pick, read the case for the other team. Before you double
down on a position, write out a serious bear case. The goal is not pessimism —
it is intellectual honesty.
4. Loss Aversion
Research
suggests most people feel the pain of the loss roughly twice as intensely as
the joy of a gain. Kahneman called this “loss aversion,” and he showed it is
hardwired into our brains from birth.
In March
Madness, loss aversion drives people to pick favorites relentlessly, even when
the expected value of an upset pick is higher. We protect our bracket's
survival rather than optimizing for winning the pool. We anchor to our initial
picks long after they should be reconsidered.
For
investors, loss aversion leads to holding losing stocks far too long — hoping
to "get back to breakeven" — and selling winners prematurely to lock
in gains. Both behaviors sacrifice expected returns in service of emotional
comfort. The result is a portfolio shaped more by feelings than by
fundamentals.
How March Madness Can Make Us Better Investors
The most
successful bracket players — and investors — share a few key traits.
1. They diversify their picks rather than over-concentrating on one narrative.
2. They respect base rates: historically, No. 1 seeds win the national
championship more often than all other seeds combined. They manage their
downside and stay in the game long enough for their process to pay off.
3. They also
know when to trust the structure over the story. The tournament bracket is a
process. A well-constructed investment policy statement is a process. Both
exist to protect us from ourselves in high-emotion moments.
Before you
submit your next bracket or make your next investment decision ask yourself:
”Am I making this pick because the data supports it, or because I watched them
play two weeks ago and they outplayed their conference rivals with a better
record? Am I buying this stock because I have a thesis, or because everyone on
my feed is talking about it?”
Conclusion
March
Madness lasts three weeks. The behavioral biases it exposes can last a
lifetime. The court just makes it more obvious than a brokerage account does.
#Marchmadness,
#NCAAbasketball, #behavioralbias, #investing
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