As you go about your day, making countless decisions, you likely assume that you are approaching each choice with an open and logical mind. However, an entire field of study in psychology suggests otherwise. Cognitive biases are the mental shortcuts and errors in thinking that cause us to make irrational judgments and poor decisions. These invisible forces operate silently in the background of our cognition, influencing how we perceive information, form conclusions, and make choices.
Even when we are confident in our reasoning, cognitive biases can lead us to draw inaccurate inferences, overlook alternative options, and make flawed predictions about the future. Understanding cognitive biases is vital to gaining insight into human behavior and improving decision-making. By becoming aware of these common mental traps, you can start to recognize their subtle effects and compensate for their influence.
Table of Contents
What Are Cognitive Biases?
Cognitive biases are systematic patterns of deviation from the rational judgment that we all experience. They are the invisible forces that shape our decisions and beliefs without our realizing them.
- Confirmation bias: We tend to search for, interpret, favor, and recall information in a way that confirms our preexisting beliefs or hypotheses. We ignore information that contradicts our views.
- Anchoring bias: We rely too heavily on the first piece of information we receive (the “anchor”) and fail to adequately adjust for subsequent information. Our judgments are biased toward that anchor.
- Loss aversion: We tend to prefer avoiding losses over acquiring gains. We feel the pain of losing something more than we enjoy the pleasure of gaining the same thing. This leads to irrational decision-making.
- Sunk cost fallacy: We continue with something merely because of the time, money, or effort we have already invested in it. We throw good money after bad instead of cutting our losses.
- Overconfidence: We tend to be more confident in our own abilities, knowledge, and judgment than is objectively warranted. This can lead to poor decision-making and a lack of preparation or risk mitigation.
Recognizing these cognitive biases in yourself and others can help reduce their influence over your thinking and lead to better, more rational decisions. But being aware of them is only the first step; you must actively work to overcome them through critical thinking, logical reasoning, and open-mindedness.
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1. Confirmation Bias: Seeing What We Want to See
As humans, we all have an innate tendency towards confirmation bias—the tendency to search for, interpret, favor, and recall information in a way that confirms our preexisting beliefs or hypotheses. This cognitive bias causes us to ignore information that contradicts our views and strengthens our existing perspectives.
Confirmation bias impacts us in several ways:
- We tend to seek out information that aligns with what we already believe. When researching a topic, we often look for sources that support our stance rather than objectively evaluating evidence from both sides.
- We interpret information in a way that confirms what we want to believe. We twist facts and reinterpret information to align with our preconceived notions. We see what we want to see.
- We remember details that confirm our beliefs and forget those that don’t. Our memory is highly selective, and we tend to better recall information that strengthens our views.
- We prefer to associate with those who share our beliefs. We tend to bond with people who reinforce our own opinions while distancing ourselves from those with opposing views. This further strengthens our biases.
Confirmation bias is an inescapable part of human nature, but being aware of it can help us think more critically and objectively. We must make an effort to consider alternative perspectives and opinions, evaluate evidence objectively, and accept that our beliefs may be flawed or inaccurate. By understanding how confirmation bias impacts us, we can work to overcome it and make better, more balanced decisions.
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2. Anchoring Bias: Relying Too Heavily on First Impressions
Anchoring bias refers to our tendency to rely too heavily on one piece of information when making decisions. The first information we receive, the “anchor,” sets the tone for our judgments and prevents us from adequately adjusting for subsequent information.
How Anchoring Bias Works
When we make a decision or judgment, we anchor it to the initial information we received. The subsequent information is then evaluated about that anchor, even if the anchor is irrelevant. For example, say you are buying a used car and the owner tells you they have already received an offer for $30,000 This acts as an anchor and establishes that $30,000 is a reasonable price for the car. Even if you get an inspection that shows the car is only worth $25,000, you are likely to pay more than $25,000 because you have anchored yourself to the initial offer of $30,000.
Effects on decision-making
Anchoring leads to poor judgment and suboptimal choices. We end up relying on arbitrary anchors rather than evaluating all information objectively. Some of the effects on decisions include:
- Accepting anchors that have no relevance. For example, being influenced by a random number when estimating the year JFK was assassinated
- Failing to adequately adjust an anchor. For example, not lowering an asking price enough to match a car’s true market value
- Anchoring to information that confirms preexisting beliefs. For example, uncritically accepting information that supports our political ideology
- Becoming overconfident in judgments based on anchors. We feel our decisions are well-reasoned, even though they are biased.
Strategies to Overcome Anchoring
Some ways to reduce the effects of anchoring bias include:
- Seek out multiple perspectives and sources of information. Don’t just rely on one initial anchor.
- View information objectively. Try to determine relevance and accuracy, not just whether it confirms what you already believe.
- Consider alternatives and ask questions. Don’t just accept anchors at face value. Explore other options and reasons why the anchor may be incorrect or misleading.
- Re-evaluate initial anchors in the context of all information. Make sure early impressions do not overshadow other, more relevant data points. Adjust judgments and decisions accordingly.
3. Loss Aversion: Why We Fear Losses More Than We Love Gains
Loss aversion refers to our tendency to prefer avoiding losses over acquiring equivalent gains. In other words, losing $5 feels worse than finding $5, which feels good. This cognitive bias shapes many of our decisions, often in ways we don’t realize.
We Take Bigger Risks to Avoid Losses.
Studies show that people will take bigger risks to avoid losses than to achieve gains. For example, investors are more likely to hold onto losing stocks longer than winning stocks, hoping to avoid locking in losses. This often backfires, leading to even bigger losses. Homeowners are also more likely to take risks to avoid selling at a loss.
Losses Feel More Impactful.
Our loss aversion causes losses to feel more psychologically impactful than gains of the same size. The pain of losing $100 is more intense than the joy of gaining $100. This imbalance in our experience of gains and losses leads us to make risk-averse choices to avoid losses.
We Develop a loss-aversion mindset.
Once we’ve incurred a loss, our mindset shifts to loss aversion. We become very sensitive to any further losses and go out of our way to avoid them, often overreacting to market signals. Investors who have recently lost money, for example, become very conservative to avoid further losses, even when that may not be the optimal strategy.
Overcoming Loss Aversion
While loss aversion is a natural human tendency, being aware of this bias can help us make better decisions. Some tips for overcoming loss aversion include:
- Looking at the opportunity cost of avoiding losses. What potential gains are you missing out on?
- Framing decisions around potential gains instead of losses
- Taking an outside perspective to see the bigger picture
- Sticking to a plan or strategy based on your long-term goals
- Accepting that some losses are inevitable and focusing on your overall progress
Loss aversion is a powerful bias, but by understanding how it impacts us, we can make choices that align better with our true priorities and values. The key is recognizing when loss aversion is influencing our thinking and adjusting accordingly.
4. The Sunk Cost Fallacy: Throwing Good Money After Bad
The sunk cost fallacy refers to our tendency to continue with something merely because of the time, money, or effort we have already invested in it. Even when that investment is no longer logical or worthwhile. People fall prey to the sunk cost fallacy when they don’t want to “waste” previous investments, even if continuing is not the best choice.
Throwing Good Money After Bad
For example, imagine paying $50 for a ticket to a basketball game. Afterward, you realize the game was terrible and not worth the money you paid. A few weeks later, you’re given a free ticket to another game. Do you go, or do you avoid it because of the bad experience you had last time? If you go, you’re falling for the sunk cost fallacy. The $50 you spent previously is gone, no matter what. It shouldn’t factor into your decision now. Going to a free game that you might enjoy makes more sense.
The sunk cost fallacy often comes into play with time and relationships as well as money. For instance, you might stay in a dead-end job or relationship merely because of all the time you’ve already invested in it, even if leaving would be better for your long-term well-being. The past is the past, and we can’t get that time or money back. But we can make better choices for the future.
Cut Your losses.
The solution is to ignore sunk costs when making decisions. Evaluate each new choice based only on the costs and benefits going forward. Will attending that free basketball game make you happy? Will finding a new job or ending that relationship improve your life? If so, that’s what matters. The money, time, or effort that’s already gone cannot be recovered, so don’t make choices trying to justify past sacrifices. Learn to cut your losses and make the best decision for the here and now. Our tendency may be to stick with the familiar to avoid “wasting” our investment, but in the long run, the sunk cost fallacy usually ends up costing us more.
5. Hindsight Bias: Thinking We Knew It All Along
It is the tendency to believe that we knew the outcome of an event all along, after the fact. Once we know the answer, it’s difficult to unknow it. Our minds trick us into thinking the outcome was more predictable than it was.
We Overestimate Our Predictive abilities.
Hindsight bias causes us to overestimate our ability to predict outcomes. We think, “I knew it all along,” but in reality, we didn’t. The bias arises because the knowledge we have now affects our memory of what we knew then. Our current knowledge influences our reconstruction of the past.
- We forget how uncertain and unpredictable the situation was at the time.
- We underestimate the number of possible outcomes that could have occurred.
- We oversimplify what led to the result, not recognizing all the complex factors involved.
- We perceive the events leading up to the result as more inevitable and obvious than they were.
Hindsight Bias in Everyday Life
We experience these frequently in our daily lives. Any time we learn the outcome of an uncertain situation, we’re prone to thinking we could have predicted it.
- Monday morning quarterbacking: believing we knew the plays that should have been called during a football game after already knowing the outcome
- Puzzle solutions: Thinking of the solution to a puzzle seems more obvious once we’ve already seen it.
- Election results: feeling like we knew who would win an election all along, even though we were uncertain beforehand
- Business outcomes: claiming we knew a business decision would be successful or unsuccessful after the results have come in
The truth is, we’re not as good at predicting the future as hindsight bias leads us to believe. Recognizing this fact can help us make fairer judgments and evaluations of our decision-making and that of others. We should try to remember how uncertain the situation was before we knew the outcome.
6. Availability Heuristic: Judging Risk Based on What’s Familiar
This refers to our tendency to judge the likelihood of an event by how easy it is to bring examples of that event to mind. In other words, we assume that events we can recall easily are more common or probable than events we can’t recall as easily.
Familiarity over Facts
When we have to make a quick judgment about risk or probability, we rely on what examples spring to mind rather than examining the facts. The availability heuristic leads us to perceive familiar risks as more likely and scarier than unfamiliar risks, even if the unfamiliar risks are more probable. For example, we tend to overestimate the risk of dying in a plane crash or terrorist attack simply because we’ve seen vivid media coverage of such tragic events, while we underestimate less publicized risks like medical errors.
Biases and Assumptions
The availability heuristic introduces dangerous biases and assumptions into our thinking. It leads to poor risk assessment and suboptimal decision-making. We assume that if we can imagine or recall something easily, it must be important or likely. But our mental availability is affected by many irrelevant factors, like media coverage, familiarity, emotional salience, and personal experience. Just because something springs readily to mind doesn’t mean it’s the most significant or probable outcome.
Overcoming Availability
To overcome availability heuristic biases, we must make an effort to consider objective facts and statistics, not just what examples come most easily to mind. We should seek out information on risks and probabilities from reputable expert sources, not just the media. And we must recognize that our personal experiences, assumptions, and emotions can distort our availability and lead us to make poor judgments. The availability heuristic may be an inevitable part of human thinking, but by understanding it and making the effort to consider the facts, we can make better choices.
7. Overconfidence: Believing We Know More Than We Do
Overconfidence leads us to believe we know more than we do. Our subjective confidence in our judgments is often higher than objective accuracy warrants. We overestimate our knowledge, the accuracy of our beliefs, and our ability to make accurate predictions about uncertain future events.
Overestimating Our Knowledge
We think we know more than we do about how the world works. We believe our knowledge and understanding of topics, events, or skills are more complete and accurate than they really are. This can lead us to make ill-informed decisions or give bad advice to others. It may prevent us from seeing our ignorance or limitations.
Overestimating Predictions
We are overly confident in our ability to predict the future and how events will unfold. We underestimate the uncertainty and randomness in the world. This can lead to poor planning, unrealistic optimism, and a lack of preparation for potential obstacles or alternative scenarios.
Diagnosing the Cause
Several factors contribute to overconfidence:
- Confirmation bias: We seek out information that confirms what we already believe and ignore information that contradicts our views. This reinforces our overconfidence.
- Anchoring bias: We rely too heavily on the first information we receive (the “anchor”) and fail to adequately adjust our views in light of subsequent information. Our judgments stay anchored to that initial anchor.
- Illusory correlation: We perceive associations and patterns between events that are not really there. We believe we have detected a real relationship, which boosts our confidence.
- Selective perception: We only perceive the information that confirms our preexisting views, rather than perceiving information in an even-handed manner. This selective perception inflates our confidence.
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The overconfidence bias leads to poor choices, a lack of preparedness, and suboptimal outcomes. Recognizing this tendency in ourselves and making an effort to consider alternative perspectives can help mitigate its effects. Staying open-minded, seeking out contradictory evidence, and avoiding an “I know best” attitude are good strategies for overcoming overconfidence.
8. Representativeness Heuristic: Judging Based on Surface Resemblances
It is a mental shortcut where we make judgments about the probability or frequency of an event based on how similar it is to our stereotype or mental prototype. In other words, if something seems familiar or representative of a particular category, we assume it has the attributes of that category.
This can lead to biased and inaccurate judgments.
For example, if you meet someone who resembles a librarian—with glasses and conservative attire—you might assume they are more likely to be a librarian than a rock musician. This is the representativeness heuristic at work. We judge the probability that a person belongs to a category based on how closely they match our mental image of that category.
While useful in some situations, the representativeness heuristic often leads to poor predictions and illogical judgments. Some key errors include:
- Ignoring base rates: We ignore the actual frequency of events and focus on surface resemblances. For example, there are many more nurses than doctors, so someone in scrubs is more likely to be a nurse. But we may assume they are doctors because that seems most “representative.”
- Not accounting for sample size: We assume small or unrepresentative samples accurately reflect the population. For example, judging that a trait is common in a group is based on a single example.
- Confirmation bias: We seek out information that confirms our preexisting stereotypes and ignore information that contradicts them. For example, noticing behaviors that confirm a person “looks like” a librarian but ignoring information that suggests otherwise
- The fallacy of small numbers: We assume the characteristics of a small group apply to the wider category. For example, judging from the fact that most librarians share attributes with the one librarian you know,
To overcome the representativeness heuristic, look for objective data and base rates rather than relying on surface judgments. Consider characteristics that run counter to stereotypes and seek out diverse examples. And remember, familiarity does not necessarily indicate a higher probability. With awareness and effort, you can avoid this common judgment error.
9. Framing Effect: Decision-Making Based on the Way Information Is Presented
This refers to the tendency for people to react differently to a choice depending on whether the options are presented in a positive or negative light. How information is framed can significantly influence the decisions we make, often without us even realizing it.
Loss Aversion
When options are framed in terms of losses rather than gains, we tend to be loss averse—we prefer avoiding losses over acquiring gains. For example, a choice presented as a 90% chance to lose $100 versus a 10% chance to lose $500 is less appealing than a 10% chance to gain $500 versus a 90% chance to gain $100, even though the outcomes are equivalent. We are more risk-seeking to avoid a loss than to secure a gain.
Rational vs. Emotional Responses
The framing effect demonstrates how susceptible we are too emotional and psychological factors when making decisions, not just rational considerations. The way information is presented triggers an instant, intuitive reaction in our mind, for better or worse. We have to make a conscious effort to overcome framing effects by evaluating options objectively.
Some tips to improve decision-making and avoid framing effects:
• Recognize when a choice is being framed negatively or positively. Look at the underlying outcomes, not just how they’re presented.
• Consider your options carefully and logically, not just based on your initial emotional reaction. Think through the pros and cons of each choice rationally.
• Look at the problem from multiple perspectives. Different frames may lead to very different intuitions, so try reframing the issue in various ways.
• When possible, have choices presented in both positive and negative frames. This makes the framing less influential and allows you to make a more balanced decision.
• Get input from others who may frame the options differently. Seek out alternative perspectives to broaden your thinking.
Ask yourself if the frame is misleading or obscuring parts of the issue. Make sure you have a full and objective understanding of your choices and their consequences.
Cognitive Bias FAQs: Common Questions and Misconceptions
Cognitive biases shape our thinking in ways we don’t always realize. Here are some of the most common questions and misconceptions about these mental shortcuts:
What are the most common cognitive biases?
Some of the cognitive biases that frequently impact our judgment and decision-making include:
- Confirmation bias: The tendency to search for, interpret, favor, and recall information in a way that confirms one’s preexisting beliefs or hypotheses
- Anchoring bias: The tendency to rely too heavily on the first piece of information offered (the “anchor”) when making decisions
- Loss aversion: The tendency to strongly prefer avoiding losses over acquiring gains Loss aversion can lead to poor decision-making.
How can we overcome cognitive biases?
Some effective strategies for overcoming cognitive biases include:
- Awareness. The first step is recognizing the types of biases we are prone to. With awareness comes the opportunity to pause and reframe our thinking.
- Slow down. Take time to evaluate information objectively before making judgments. Don’t go with your gut reaction.
- Seek alternative perspectives. Expose yourself to different ways of thinking about a problem or decision. Consider opinions that challenge your own.
- Look for objective data and evidence. Rely on facts over intuition whenever possible. Measure and track key metrics to guide decisions.
- Consider alternatives. Try to imagine other options or scenarios beyond the most obvious ones. A “what else could be true?” mindset can help overcome blind spots.
- Get input from others. Seek out independent opinions to provide balance and catch biases you can’t see in yourself. But be wary of “groupthink”!
The more we understand about how the mind works, the better equipped we are to make objective, well-reasoned choices free of the most problematic cognitive biases. But a little intuition in the right measure won’t hurt either. Moderation in all things, including thought.
Take Away
Are cognitive biases always bad? No, cognitive biases are not inherently bad. They serve an important purpose in helping us make quick judgments and decisions, especially in times of uncertainty or limited time or information. The problem arises when we rely too heavily on cognitive biases rather than more logical or data-driven thinking. Using both intuition and reasoning can lead to better outcomes.
References
- Wikipedia – from wikipedia the free encyclopedia
- Hindsight Bias: Causes, Examples and FAQ By JAMES CHEN Updated September 29, 2022 Reviewed by GORDON SCOTT Fact checked by SUZANNE KVILHAUG published in Investopedia
- How Susceptible Are You to the Sunk Cost Fallacy? by David Ronayne, Daniel Sgroi, and Anthony Tuckwell published in Harvard Business Review
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