25 Cognitive Biases

Question 1

Anchoring Effect

Answer 1

AKA relativity trap

Tendency we have to compare and contrast only a limited set of items

Called anchoring effect because we tend to fixate on a value or number that in turn gets compared to everything else

Question 2

Confirmation Bias

Answer 2

Most people are biased toward confirming their existing beliefs

Having a tendency to test ideas in a one sided way by searching for evidence consistent with their current hypothesis and ignoring alternatives

Question 3

Projection Bias

Answer 3

Tend to assume most people think just like us, though there may be no justification for it

Tendency to unconciously assume that others share one’s current emotional states

Thoughts and values often leads to a related effect known as false consensus bias where we tend to believe that people not only think like us, but agree with us

Question 4

Hyperbolic Discounting

Answer 4

Tendency for people to want an immediate payoff rather than a larger gain later on

Most people would rather take $5 now than $7 in a week

Question 5

Fundamental attribution error (aka correspondence bias)

Answer 5

AKA correspondence bias

Default assumption that what a person does is based more on what “kind” of person he or she is, rather than social and environmental forces at work on that person

Often leads to erroneus explanations for behavior

Question 6

Curse of Knowledge

Answer 6

When better-informed people find it extremely difficult to think about problems from the perspective of lesser-informed people

Question 7

Hindsight Bias

Answer 7

“I knew it all along” effect

Tendency to see past events as being predictable at the time those events happened

Question 8

Identifiable Victim Effect

Answer 8

Tendency to respond more strongly to a single identified person at risk than to a large group of people at risk

Question 9

Sunk Cost Fallacy

Answer 9

AKA Irrational Escalation

Phenomenon where people justify increased investment in a decision, based on the cumulative prior investment

Question 10

Loss Aversion

Answer 10

The disutility of giving up an object is greater than the utility associated with acquiring it

Amateur investors will often hold on to a bad investment instead of selling them at a loss and putting the money toward a better investment

Question 11

Outcome bias

Answer 11

Tendency to judge a decision by its eventual outcome instead of based on the quality of the decision at the time it was made

Risky investments that pay off are cited as “genius” instead

Question 12

Overconfidence effect

Answer 12

Excessive confidence in one’s own answers to questions

For certain types of questions, answers that people rate as “99 certain” turn out to be wrong 40% of the time

Question 13

Risk compensation

Answer 13

AKA Peltzman effect

Tendency to take greater risks when perceived safety increases

Vehicle becomes safer (air bags, seat belts etc.) drivers take more risks to compensate

Question 14

Halo Effect

Answer 14

Tendency for a person’s positive or negative traits to “spill over” from one personality to another in others’ perceptions of them

You view negative actions of people you like in a much kinder light than people you dislike

Question 15

Illusion of Asymmetric Insight

Answer 15

People perceive their knowledge of their peers to surpass their peer’s knowledge of them

In arguments with another person it’s common to tell them what they are like in great detail because clearly they have very little self-knowledge. They argue back telling you things about yourself that are clearly wrong or that you knew anyway

Question 16

Self-serving bias

Answer 16

Tendency to claim more responsibility for successes than failures

It may also manifest itself as a tendency for people to evaluate ambiguous information in a way beneficial to their interests

Student attributes earning a good grade on an exam to their own intelligence and preparation but attributes earning a poor grade to the teacher’s poor teaching ability or unfair test questions is exhibiting the self-serving bias

Question 17

Illusion of truth effect

Answer 17

People are more likely to identify as true statements those they have previously heard (even if they cannot consciously remember having heard them), regardless of the actual validity of the statement

In other words, a person more likely to believe a familiar statement than an unfamiliar one

Example
We see advertising for the same products over and over again

Question 18

Spotlight effect

Answer 18

Tendency to overestimate the amount that other people notice your appearance or behavior

Question 19

Survivorship Bias

Answer 19

The logical error of concentrating on the people or things that survived some process and inadvertently overlooking those that did not because of their lack of visibility

This bias manifests itself in people who systematically overestimate their chances of success

Example
Companies that no longer exist are sometimes excluded from analyses of financial performance

Question 20

Availability Bias

Answer 20

When someone overestimates the importance of information that is available to them

Example
A person who argues that smoking is not unhealthy on the basis that his grandfather lived to 100 and smoked 3 packs a day, ignores the possibility that his grandfather was an outlier

Question 21

The Swimmer’s Body Illusion

Answer 21

Professional swimmers don’t have perfect bodies because they train extensively. Rather, they are good swimmers because of their physiques. How their bodies are designed is factor for selection and not the result of their activities.

Whenever we confuse selection factors with results, we fall prey to the swimmer’s body illusion. Without this illusion, half of advertising campaigns would not work.

Example
Harvard has the reputation of being a top university. Many highly successful people have studied there. Does this mean that Harvard is a good school? We don’t know. Perhaps the school is mediocre, and it simply recruits the brightest students around.

Question 22

Negativity Bias

Answer 22

People tend to pay more attention to bad news

Often we perceive negative news as being more important or profound

We also tend to give more credibility to bad news, perhaps because we’re suspicious (or bored) of proclamations to the contrary

Example
Steven PInker argues that crime, violence, war, and other injustices are steadily decline, yet most people would argue that things are getting worse

Question 23

Bias Blind Spot

Answer 23

Tendency to see oneself as less biased than other people, or to be able to identify more cognitive biases in others than in oneself

Some people believe their peers have significantly more bias than themselves

Question 24

Fundamental attribution error

Answer 24

AKA correspondence bias

Default assumption that what a person does is based more on what “kind” of person he or she is, rather than the social and environmental forces at work on that person

Often leading to erroneous explanations for behavior

Example
You say hello to someone, and they just give you a quick unfriendly “hello” and then walk away. It would be a fundamental attribution error to think this person is unfriendly by nature. Perhaps the person is having the worst day of their life, or just found out a loved one died, or failed a test and was feeling devastated, etc.

Question 25

Dunning-Kruger Effect

Answer 25

The situation in which incompetent people fail to realize they are incompetent because they lack the skill to distinguish between competence and incompetence

Actual competence may weaken self-confidence, as competent individuals may falsely assume that others have an equivalent understanding

Example
Immediately after a test, subjects who perform poorly are susceptible to the Dunning-Kruger effect will often believe they have done well

Question 26

Framing Effect

Answer 26

Drawing different conclusions from the same information, depending on how or by whom that information is presented

Example
Many more people will register early for a conference when a penalty fee for late registration is emphasized, compared to when discount for early registration is emphasized

Most people will support an economic policy if the employment rate is emphasized than when the associated unemployment rates is highlighted