The tools we use to analyse data can significantly impact our decision-making processes. Is it possible that cognitive bias can creep in when we favour sensitivity tables over histograms?

Sensitivity tables are widely used and help us understand how changes in rental growth and exit yield can affect the return on an investment. They offer a structured approach that can be reassuring. However, there may be potential pitfalls of this method. Sensitivity tables can inadvertently lead to cognitive bias by emphasizing a limited set of scenarios and variables with little room for manoeuvre when considering portfolio impacts. This can skew our perception of risk and diversification.

On the other hand, histograms paint a more comprehensive picture. They visualise the full distribution of potential returns and can be used to explore the impact of the property on portfolio risk.

Would you agree? Please comment below if you would like to receive the slides from our recent webinar with Bayfield Training exploring the use of sensitivity tables and how a switch to histograms enables a seamless transition to exploring the impact of the property on portfolio risk.