Q8 Biases Flashcards
What is the meaning of “bias”?
A natural tendency, mostly beyond one’s control
Cognitive biases
Mental tendencies that are often hidden or unrecognized, making it so they are particularly powerful
The 4 types of cognitive biases
- Anchoring bias
- Availability heuristic
- Price bias
- Relativity trap
When do general tendencies surface and why?
When we have insufficient information, as we are often unaware this deficit is affecting our numerical judgment
Anchoring bias
Reliance on the first number or piece of information offered when faced with inadequate information
Do you think there are more or less than 20 countries in Africa?
OR
Do you think there are more or less than 40 counties in Africa?
Offering either 20 or 40 changes the guess, serving as a mental anchor
Group 1 was told to guess the answer to the equation:
1 x 2 x 3 x 4 x 5 x 6 x 7 x 8
Group 2 got this equation:
8 x 7 x 6 x 5 x 4 x 3 x 2 x 1
The median guess of Group 1 was 512
The median guess of Group 2 was 2,250
Even though the equations’ answer is the same and has the same numbers as each other, starting with the larger number changed the guess
Coach A starts with a low record, and slowly progresses
Coach B starts with a high record, and jumps between high and low records
Why do most people choose Coach A?
- Starting with a low number lowers expectation
- Coach B started with a higher number, which anchored expectations to be higher
Availability heuristic
Extrapolating from top-of-mind examples when faced with inadequate info
Heuristic
Mental rule of thumb obtained through self-learning
Availability
Refers to drawing quickly from memory or experience
Think of the difference between the two questions:
How many six-letter words have the form _ _ _ _ n _?
How many six-letter words have the form _ _ _ i n g?
- Second question is easier to come up with at the top of our heads
- Even though both questions could have the same answer
- First question could have more answers
Which is more common in the USA: homicide or suicide?
- Most would say homicide because we see it all the time on the news and in movies
- We rarely hear about suicide because it’s seen as a private matter
- True answer is suicide
- Availability heuristic skews our estimation
Instagram envy
Availability heuristic makes us think everyone else had a better summer/trip because those posts are what readily comes to mind
An experiment gave participants a “pain relieving” pill after administering electric shocks, without knowing it was a placebo. The ones who thought the pill was $2.50 said it worked great, but the ones who thought it was 10 cents said it worked poorly.
- $2.50 is expensive, so for the price, it is expected to work
- 10 cents is cheap, so it lowers to expectation for product effectiveness
Price bias
Allows price to determine perceptions of effectiveness or quality when faced with inadequate information
A new Apple phone costs about $700
A competitor offers a $300 phone
You would rightfully question its quality
When is price bias at its most significant?
When we lack enough information to make an informed choice, we essentially let price decide
Relativity trip
Assigns greater weight to numbers based on their relative size when faced with inadequate info
You want to buy a new laptop from your usual store for $1000. Your friend says if you travel 1 extra mile to a different store you can get it $10 off. Why do most people choose not to travel the extra mile?
Getting $10 off a laptop is relatively small, it’s just 1%
You want to buy a 6-pack of Gatorade from your usual grocery store. Your friend says if you travel 1 extra mile to a different store you can get it BOGO. Why do most people choose to go to the different store?
Getting $10 off Gatorade is a large saving, it’s 50%
Three magazine subscriptions are offered:
Online-only: $59
Print-only: $125
Print and online: $125
What do most people choose?
- Most people know the second one is a bad deal
- It was offered so more people choose the print and online subscription
- If they got rid of the bad deal, most people would just get the cheaper option
Starbucks only offered 3 sizes. If Venti is the best deal with the lower price per ounce, why don’t people get it?
- Some people think its too much for them to drink
- Grande is the most popular because its in the middle and Americans prefer perceived moderation
Starbucks added a Trenta size. What does this do?
It skews the “middle option” to be Venti, causing more people to buy the more expensive drink size
Difference between relativity trap and price bias
- Relativity trap assigns weight to numbers based on their relative position
- Price bias uses price as a substitute for quality or effectiveness
Why do Silver Olympic medalists feel more disappointed than Bronze?
- Silver thinks they could’ve been a LITTLE better and gotten Gold and 1st place
- Bronze is happy that they didn’t get fourth place and no medal
