Biases

Question 1

What is overconfidence bias?

Answer 1

Individuals overestimate or have excessive confidence in their ability to predict or foresee future events. This will cause the decision maker to unsupported or risky decisions.

Question 2

What is hindsight bias?

Answer 2

This is the tendency of individuals to see past mistakes or occurrences as obvious. After the event has occurred, individuals believe that they did or should have seen it coming. This is important when evaluating others decisions.

Question 3

What is the anchoring effect?

Answer 3

Anchoring is when someone attaches themselves to an initial bit of information. In decision-making, it entails people placing too much emphasis on the single piece of information. This can cause the decision maker to fail to consider other important information.

Question 4

What is framing bias?

Answer 4

Framing bias is an individuals response to how a situation or decision is presented. This can lead to individuals being deceived or manipulated by third parties.

Question 5

What is escalation of commitment?

Answer 5

This is a tendency of individuals to continue to follow what has proven to be a negative or unproductive course of action. Also known as the sunk cost fallacy or sunk cost bias, because the tendency is motivated by an unwillingness to admit that they are wrong or accept that resources are lost or wasted (they may be able to recover the investment).

Question 6

What is immediate gratification?

Answer 6

This is the tendency to make the immediacy of a potential solution to a problem or situation the most important criteria. The result is the failure to consider all available options and settling for a sub-part outcome form a decision that fails to deliver all available value.

Question 7

What is selective perception?

Answer 7

This is the tendency to see a particular situation or issue from a chosen perspective. This is related to the team-based mentality. We see all situations or issues through a common lens that influences our ability to understand alternative or conflicting points of view or alternatives.

Question 8

What is confirmation bias?

Answer 8

Confirmation bias is to actively look for information or facts in a situation that supports a particular choice or decision. This approach causes the decision maker to ignore evidence to the contrary. This can also cause a failure to consider contrary information of positions.

Question 9

What is availability bias?

Answer 9

Availability bias is a focus on immediate information or situations that come to ones mind. The result is that we tend to believe the information or experience that we recall or demonstrative or explicative of a situation or scenario. This comes at the expense of looking for additional information that could lead to a further understanding of the situation. As such, a decision is made on limited or superficial information.

Question 10

What is representation bias?

Answer 10

This is the tendency to believe a situation is indicative of a greater tendency. That is, it is related to stereotyping. The decision maker believes that the situation represents all of the characteristics of the population of which it is a part. It causes a failure in the perception of ones ability to predict a given outcome or result.

Question 11

What is randomness bias?

Answer 11

This is the tendency to see a pattern in otherwise random data or information. We increasingly seek to harness new sources of information in the decision-making process. Our search for meaning in information leads to an unreasonable reliance on insignificant results.

Question 12

What is self-serving bias?

Answer 12

This is ones tendency to attribute the positive results of a decision or situation to ones own actions or decision. Likewise, it causes individuals to attribute negative consequences to factors outside of our control. This can cause an inability to accurately assess or affect a situation through decision making.

Question 13

What is fundamental attribution error?

Answer 13

The tendency for people to over-emphasize personality-based explanations for behaviors observed in others while under-emphasizing the role and power of situational influences on the same behavior.

Question 14

What is rationalisation?

Answer 14

The process of constructing a logical justification for a decision that was originally arrived at through a non-rational decision process. Can be conscious, but is mostly subconscious.

Question 15

What is the bandwagon effect?

Answer 15

The tendency to do (or believe) things because many other people do (or believe) the same.

Question 16

What is the status quo bias?

Answer 16

The tendency for people to like things to stay relatively the same. The preference towards alternatives that maintain or perpetuate the current situation even when better alternatives exist.

Question 17

What is the illusion of control?

Answer 17

The tendency for human beings to believe they can control or at least influence outcomes which they clearly cannot.

Question 18

What is the prudence trap?

Answer 18

When faced with high-stakes decisions, we tend to adjust our estimates or forecast to be “on the safe side”.

Question 19

What is the recallability trap?

Answer 19

Giving undue weight to recent, dramatic events.

Question 20

What is sunk cost bias?

Answer 20

To make choices in a way that justifies past choices, even when the past choices no longer seem valid.

Question 21

What is loss aversion?

Answer 21

The tendency for people to strongly prefer avoiding losses than acquiring gains.

Question 22

What is survivorship bias?

Answer 22

For example, the frequent mistake to forget to include companies that no longer exist in research reports studying various forms of corporate performance.

Question 23

What are the ten most common mistakes in decision-making, many of which are related to cognitive bias?

Answer 23

• Plunging In: Beginning to gather information and reach conclusions too early.
• Frame Blindness: Creating a mental framework for your decision.
• Lack of Frame Control: Failing to define the problem in more than one way.
• Overconfidence in Your Judgment: Failing to gather key factual information.
• Shortsighted Shortcuts: Relying inappropriately on “rules of thumb”.
• Shooting from the Hip: Failing to follow a systematic procedure when making the final decision.
• Group Failure: Failing to manage the group decision-making process.
• Fooling Yourself About Feedback: Failing to interpret the evidence from past outcomes correctly.
• Not Keeping Track: Failing to keep systematic records to track the results of your decisions.
• Failure to Audit Your Decision Process: Failing to create an organized approach to understand your own decision-making.

Question 24

What is the barnum effect?

Answer 24

The principle that people are able to find meaning in vague descriptions that could easily be interpreted in many other ways.