Psychology Definitions Flashcards
Survivorship Bias
Overestimating your chances of success because of the disproportionate accounts of success stories (no one talks about the failures)
Swimmers Body illusion
Confusing the selection factors with the result
People who pursue an MBA are more likely to earn more than those who are not interested in an MBA. Therefore, looking at statistics on how an MBA helps you earn more would cause you to this it is because of the MBA, when it is actually the type of person
Social proof
People tend to do things because they see and follow the rest of the ‘herd’.
If fifty million people say something foolish, it is still foolish
Confirmation bias
The tendency to interpret new information so it becomes compatible with our existing theories, beliefs, convictions
Authority bias
People doing things because an authority figure has instructed them to do so
Contrast effect
We have difficulty with absolute judgements
We judge something to be beautiful, expensive, or large if we have something ugly, cheap, or small in front of us
Availability bias
We create a picture of the world using examples the most easily come to mind
“ Manhattan is really safe. I know someone who lives in the middle of the Village never locks his door… his apartment has never been broken into”
Just because a fact comes easily into mind doesn’t mean it represents the whole population
Chauffeur knowledge
Just because someone can reel off information in an attractive manor does not mean the possess knowledge
Physicist Max Planck 1918
Illusion of control
The tendency to believe we can influence something over which we have absolutely no power
The man waving his cap in Times Square to keep the giraffes away
Incentive super response tendency
Charlie Munger
People respond to incentives by doing what is in their best interest
Never pay your lawyer by the hour
Regression to mean error
People/performance will naturally experience highs & lows, eventually regressing to the mean.
If you have sex, and the next day your business ends an abnormal hot streak, don’t stop making love… it was just natural regression
The endowment effect
People tend to value their possessions higher if they have been recently acquired
Groupthink
This is where a group of smart people make reckless decisions because everyone aligns their opinions with the supposed consensus
Neglect of Probability
We lack an intuitive grasp of probability.
People are equally afraid of 99% chance as they are about 1% chance of contamination by toxic chemicals
Base-rate neglect
The disregard of fundamental distribution levels
When you hear hoofbeets, don’t expect a zebra
The German truck driver that listens to Mozart
