The contagion bias describes how we are incapable of ignoring the connection we feel to certain items – be they from long ago or only indirectly related (as with the photos).
When we have faced some events in life and if anything related to those events comes Infront of us then we cannot ignore it and cannot stop reacting. Connection in our minds comes alive and we start getting disturbed.
One person has cheated on me a long back but when I met a family member the person, I cannot ignore the connection between both the person and I became rude in conversation.
If we have made an investment in any stock and have incurred a loss, then that sector, management, valuation, or anything will stay in our mind. When we meet up in a similar situation then our mind again lives that connection that impacts our thinking and decision making.
We heard that companies that originated from particular cities have a higher probability of wealth destruction. When any investment opportunity comes in front of us from similar cities then we used to ignore that opportunity without doing proper research on it.
So that we need to prepare a checklist for every stock, every time. If a stock is passing that checklist, then we must invest in it rather than getting biased from any past events.