Cognitive Bias Flashcards
Conservatism Bias (Definition, Consequence, Detection/Fix)
DEFINITION:
Maintain prior views or forecasts by inadequately incorporating new information, causes individuals to overweight initial beliefs about probabilities and outcomes and under-react to new information; they fail to modify their beliefs and actions to the extent rationally justified by the new information.
CONSEQUENCE:
Maintain or be slow to update a view or a forecast, even when presented with new information.
Maintain or be slow to update a view or a forecast, even when presented with new information.
Too much risk + Lack of Diversification
DETECTION/FIX:
The effect of conservatism bias may be corrected for or reduced by properly analyzing and weighting new information. The first step is to be aware that a bias exists.
Confirmation Bias (Definition, Consequence, Detection/Fix)
Confirmation bias is a belief perseverance bias in which people tend to look for and notice what confirms their beliefs, and to ignore or undervalue what contradicts their beliefs. This behavior has aspects of selective exposure, perception, and retention and may be thought of as a selection bias. It is an all too natural response to cognitive dissonance and reflects an ability to convince ourselves of what we want to believe by giving more weight to evidence that supports our beliefs and to ignore or modify evidence that conflicts with our beliefs.
Representativeness Bias (Definition, Consequence, Detection/Fix)
Representativeness bias is a belief perseverance bias in which people tend to classify new information based on past experiences and classifications. They believe their classifications are appropriate and place undue weight on them. This bias occurs because people attempting to derive meaning from their experiences tend to classify objects and thoughts into personalized categories. When confronted with new information, they use those categories even if the new information does not necessarily fit. They rely on a “best fit” approximation to determine which category should provide a frame of reference from which to understand the new information.
Illusion of Control (Definition, Consequence, Detection/Fix)
Illusion of control bias is a bias in which people tend to believe that they can control or influence outcomes when, in fact, they cannot. Langer (1983) defines the illusion of control bias as the “expectancy of a personal success probability inappropriately higher than the objective probability would warrant.”
Hindsight Bias (Definition, Consequence, Detection/Fix)
Hindsight bias is a bias with selective perception and retention aspects. People may see past events as having been predictable and reasonable to expect. This behavior is based on the obvious fact that outcomes that did occur are more readily evident than outcomes that did not occur. Also, people tend to remember their own predictions of the future as more accurate than they actually were because they are biased by the knowledge of what has actually happened.
Anchoring Bias (Definition, Consequence, Detection/Fix)
Anchoring and adjustment bias is an information-processing bias in which the use of a psychological heuristic influences the way people estimate probabilities. When required to estimate a value with unknown magnitude, people generally begin by envisioning some initial default number—an “anchor”—which they then adjust up or down to reflect subsequent information and analysis. Regardless of how the initial anchor was chosen, people tend to adjust their anchors insufficiently and produce end approximations that are, consequently, biased. This bias is closely related to the conservatism bias. In the conservatism bias, people overweight past information compared to new information. In anchoring and adjustment, people place undue weight on the anchor. People anchor and adjust because they are generally better at estimating relative comparisons than absolute figures.
Mental Accounting Bias (Definition, Consequence, Detection/Fix)
Mental accounting bias is an information-processing bias in which people treat one sum of money differently from another equal-sized sum based on which mental account the money is assigned to. Richard Thaler (1980) describes mental accounting as a process in which people code, categorize, and evaluate economic outcomes by grouping their assets into any number of non-fungible (non-interchangeable) mental accounts. This method contradicts rational economic thought because money is inherently fungible.
Framing Bias (Definition, Consequence, Detection/Fix)
Framing bias is an information-processing bias in which a person answers a question differently based on the way in which it is asked (framed). How information is processed is dependent upon how the question is framed. In actual choice contexts, a decision maker has flexibility in how to think about a problem.
Availability Bias (Definition, Consequence, Detection/Fix)
Framing bias is an information-processing bias in which a person answers a question differently based on the way in which it is asked (framed). How information is processed is dependent upon how the question is framed. In actual choice contexts, a decision maker has flexibility in how to think about a problem.
