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Outcome bias

Judging a decision based on the outcome — rather than how exactly the decision was made in the moment. Just because you won a lot in Vegas doesn’t mean gambling your money was a smart decision.

 

Overconfidence

Overconfidence

Chris Hondros/Getty Images

Some of us are too confident about our abilities, and this causes us to take greater risks in our daily lives.

Perhaps surprisingly, experts are more prone to this bias than laypeople. An expert might make the same inaccurate prediction as someone unfamiliar with the topic — but the expert will probably be convinced that he’s right.

 

Placebo effect

When simply believing that something will have a certain impact on you causes it to have that effect.

This is a basic principle of stock market cycles, as well as a supporting feature of medical treatment in general. People given “fake” pills often experience the same physiological effects as people given the real thing.

 

Pro-innovation bias

Pro-innovation bias

Daniel Goodman / Business Insider

When a proponent of an innovation tends to overvalue its usefulness and undervalue its limitations. Sound familiar, Silicon Valley?

 

Recency

The tendency to weigh the latest information more heavily than older data.

As financial planner Carl Richards writes in The New York Times, investors often think the market will always look the way it looks today and therefore make unwise decisions: “When the market is down, we become convinced that it will never climb out so we cash out our portfolios and stick the money in a mattress.”

 

Salience

Our tendency to focus on the most easily recognizable features of a person or concept.

When you think about dying, for example, you might worry about being mauled by a lion, even though dying in a car accident is statistically more likely, because the lion attacks you’ve heard about are more dramatic and stand out in your mind.

 

Selective perception

Allowing our expectations to influence how we perceive the world.

In a classic experiment on selective perception, researchers showed a video clip of a football game between Princeton and Dartmouth Universities to students from both schools. Results showed that Princeton students saw Dartmouth players commit more infractions than Dartmouth students saw. The researchers wrote: “The ‘game’ exists for a person and is experienced by him only in so far as certain happenings have significances in terms of his purpose.”

 

Stereotyping

Expecting a group or person to have certain qualities without having real information about the individual.

There may be some value to stereotyping because it allows us to quickly identify strangers as friends or enemies. But people tend to overuse it — for example, thinking low-income individuals aren’t as competent as higher-income people.

 

Survivorship bias

Survivorship bias

AP

An error that comes from focusing only on surviving examples, causing us to misjudge a situation.

For instance, we might think that being an entrepreneur is easy because we haven’t heard of all of the entrepreneurs who have failed.

 

Zero-risk bias

Zero-risk bias

Sociologists have found that we love certainty — even if it’s counter productive.

Thus the zero-risk bias.

“Zero-risk bias occurs because individuals worry about risk, and eliminating it entirely means that there is no chance of harm being caused,” says decision science blogger Steve Spaulding. “What is economically efficient and possibly more relevant, however, is not bringing risk from 1% to 0%, but from 50% to 5%.”

 

Source: Business Insider

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