How to Make Better Decisions

Something is obvious when you know it, and not if you don't—so too the definition of the Curse of Knowledge .

Also, I find that assuming someone knows something or being surprised that someone doesn't know something can sound extremely condescending, so it’s probably best to avoid that.

The Sunk Cost Fallacy describes our tendency to follow through on an endeavor if we have already invested time, effort, or money into it, whether or not the current costs outweigh the benefits."

Loss Aversion is simply the disproportional weight a person often places on minimizing losses to acquire economic gains.

For example, someone may prefer to take $10 with 100% certainty rather than $20 with 90% certainty because the displeasure from that 10% possibility outweighs the pleasure they'd receive from the additional $10 (or expected $8 = (0.9 * 20) - 10).

This is extremely irrational and puts non-disciplined investors at a mathematical disadvantage.

The Gambler's Fallacy refers to the incorrect belief that a given event is more or less likely given a previous sequence of events when the event is not a function of time.

Anchoring is a cognitive bias that causes us to rely too heavily on the first piece of information we are given about a topic. When we are setting plans or making estimates about something, we interpret newer information from the reference point of our anchor, instead of seeing it objectively."

Sample Bias originates from statistics and is a result of a flawed collection of an intended random sample.

This is particularly common in business and Twitter where people think their customers or Twitter poll-responders are representative of the entire population.

Assignment Bias is similar to Sample Bias in that it is a bias in the sample but is rooted in a broken assignment system. For example, imagine an experimental drug trial where the "random assignment machine" (i.e., a machine that assigns things at random) only treated the young and healthy—obviously that’s biased—and while that is a pathological and extreme example it highlights the issue.

Decision Fatigue is a phenomenon whereby an individual's decision making quality deteriorates after a long session of decision making.

Response Bias is both interesting and counterintuitive.

It is a catch-all for the frequent tendency of participants to respond inaccurately or falsely to survey questions. This is part of the reason surveys often conflict with reality.

For internet companies, you may find that user-survey data conflict with tracking metrics that you have for your customer. What people say and what they do are often wildly different.