<p><b>A common occurrence of heuristics in which we use an initial starting point as an anchor that is then adjusted to yield a final estimate or value.</b></p><p>Example: estimating the value of an object based on the common price of similar objects.</p>

Anchoring Bias

<p><b>People who are told that the risk of something bad happening is lower than they expected, tend to adjust their predictions to match the new information. But they ignore the new information when the risk is higher.</b></p><p>Part of this overly optimistic outlook stems from our natural tendency to believe that bad things happen to other people, but not to us. </p>

Being Too Optimistic

<p><b>Sometimes we make poor comparisons or the compared items are not representative or equal.</b></p><p>We often decide based on rapid comparisons without really thinking about our options. In order<b> to avoid bad decisions, relying on logic and thoughtful examination</b> of the options can sometimes be more important than relying on your immediate "gut reaction."</p>

You Often Make Poor Comparisons

<p>To make decisions quickly and economically, <b>our brains rely on cognitive shortcuts</b> <b>known as heuristics. </b>Heuristics allow us to make judgments quickly and often accurately, but they <b>can also lead to fuzzy thinking and poor decisions</b>.</p><p>To minimize the potential negative impact of heuristics on your decisions, <b>become more aware of them.</b> </p>

Mental Shortcuts Can Trip You Up

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<p>How many decisions do you think you make during the average day? Dozens? Hundreds, perhaps? Psychologists believe that the number is actually in the thousands. Some of these decisions have resounding effects over the course of our lives (like whether or not to go to college, get married, or have kids), while others are relatively trivial (like whether to have a ham or turkey sandwich for lunch).</p>
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<p>Some of these choices turn out to be really good (you choose a college major that then leads to a rewarding career), while others end up being not so great (the turkey sandwich you selected was awful and it upset your stomach).</p>
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<p>So as you look back at your life and think about some of the poor choices you have made, you might find yourself wondering exactly  <em>why</em> you  <a href="https://www.verywellmind.com/decision-making-strategies-2795483">made those decisions</a> that seem so poor now in retrospect. Why did you marry someone who was all wrong for you? Why did you buy that overpriced compact car when you have four kids and need a bigger vehicle? What were you thinking when you bought those awful high-waisted jeans last fall?</p>
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<p>While it goes without saying that you will probably continue to make  <a href="https://www.verywellmind.com/problems-in-decision-making-2795486">bad decisions</a>, you can gain a deeper understanding of the process behind these sometimes irrational choices. There are a number of factors that contribute to poor choices and knowing how these processes work and influence your thinking can perhaps help you to make better decisions in the future.</p>
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<p>Next, learn why taking mental shortcuts sometimes leads to poor choices.</p>
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<h3> Mental Shortcuts Can Trip You Up </h3>
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<p>If we had to think through every possible scenario for every possible decision, we probably wouldn't get much done in a day. In order to make decisions quickly and economically, our brains rely on a number of cognitive shortcuts known as <a href="https://www.verywellmind.com/what-is-a-heuristic-2795235">heuristics</a>. These mental rules-of-thumb allow us to make judgments quite quickly and often times quite accurately, but they can also lead to fuzzy thinking and poor decisions.</p>
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<p>One example of this is a sneaky little mental shortcut known as the <a href="https://www.verywellmind.com/what-is-the-anchoring-bias-2795029">anchoring bias</a>. In many different situations, people use an initial starting point as an anchor that is then adjusted to yield a final estimate or value. For example, if you are buying a house and you know that homes in your target neighborhood typically sell for an average price of $358,000, you will probably use that figure as a basis to negotiate the purchase price of the home you choose.</p>
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<p>In a classic experiment by researchers Amos Tversky and Daniel Kahneman, participants were asked to spin a wheel of fortune that offered a number between 0 and 100. The subjects were then asked to guess how many countries in Africa belonged to the United Nations. Those who had gotten a high number on the wheel of fortune were more likely to guess that there were many African countries in the U.N., while those who had gotten a lower number were likely to give a much lower estimate.</p>
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<p>So what can you do to minimize the potential negative impact of these heuristics on your decisions? Experts suggest that just becoming more aware of them can help. In the case of the anchoring bias, coming up with a range of possible estimates can help. So if you are buying a new car, come up with a range of reasonable prices rather than focusing on the overall average price of a particular vehicle. If you know that a new SUV will cost somewhere between $27,000 and $32,000 for the size and features you want, you can then make a better decision about how much to offer on a particular vehicle.</p>
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<p>Next, discover how the comparisons you make sometimes lead too bad decisions.</p>
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<h3> You Often Make Poor Comparisons </h3>
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<p>How do you know that you got a good deal on that digital tablet you just bought? Or how do you know that the price you paid for a gallon of milk at the grocery store was fair? The comparison is one of the major tools we use when making decisions. You know what the typical price of a tablet or gallon of milk is, so you compare the deals to find in order to select the best possible price. We assign value based on how items compare to others things.</p>
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<p>But what happens when you make poor comparisons? Or when the items you are comparing your options to are not representative or equal? Consider this for example: how far out of your way would you go to save $25?</p>
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<p>If I told you that you could save $25 on a $75 item by driving 15 minutes out of your way, you would probably do it. But if I told you that you could save $25 off of a $10,000 item, would you still be willing to go out of your way to save the money? In most cases, people are less willing to travel further to save money on the more expensive item. Why? Twenty-five dollars is still worth the same amount in either case.</p>
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<p>In such instances, you've just fallen victim to a faulty comparison. Since you are comparing the amount you save to the amount you pay, $25 seems like a much greater savings when it is compared against a $75 item than it does when contrasted with a $10,000 item.</p>
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<p>When making decisions, we often make rapid comparisons without really thinking about our options. In order to avoid bad decisions, relying on logic and thoughtful examination of the options can sometimes be more important than relying on your immediate "gut reaction."</p>
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<h3> You Can Be Too Optimistic </h3>
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<p>Surprisingly, people tend to have a natural-born optimism that can hamper good decision-making. In one fascinating study, researcher <a href="https://www.ted.com/talks/tali_sharot_the_optimism_bias">Tali Sharot</a> asked participants what they thought the chances were of a number of unpleasant events happening-things such as being robbed or getting a terminal illness. After the subjects had given their predictions, the researchers then told them what the actual probabilities were.</p>
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<p>When people are told that the risk of something bad happening is lower than they expected, they tend to then adjust their predictions to match the new information they learned. When they discover that the risk of something bad happening is actually much higher than they estimated, they tend to simply ignore the new information. For example, if a person predicts that the odds of dying from smoking cigarettes is only 5 percent but is then told that the real risk of dying is actually closer to 25 percent, people will likely ignore the new information and stick with their initial estimate.</p>
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<p>Part of this overly optimistic outlook stems from our natural tendency to believe that bad things happen to other people, but not to us. When we hear about something tragic or unpleasant happening to another person, we often tend to look for things that the person might have done to cause the problem. This tendency to blame the victims protects us from having to admit that we are just as susceptible to tragedy as anyone else.</p>
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<p>Sharot refers to this as the <a href="https://www.verywellmind.com/what-is-the-optimism-bias-2795031">optimism bias</a>, or our tendency to overestimate the likelihood of experiencing good events while underestimating the likelihood of experiencing bad events. She suggests that this isn't necessarily a matter of believing that things will just magically fall into place, but instead overconfidence in our own abilities to make good things happen.</p>
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<p>So what impact does this optimism bias have on the decisions we make? Since we might be overly optimistic about our own abilities and prospects, we are more likely to believe that our decisions are the best ones. Experts might warn that smoking, being sedentary, or eating too much sugar can kill, but our optimism bias leads us to believe that it mostly kills other people, not us.</p>
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<p>Hertz, N. <a href="https://www.nytimes.com/2013/10/20/opinion/sunday/why-we-make-bad-decisions.html">Why We Make Bad Decisions</a>. The New York Times, 2013.</p>
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<p>Tversky, A, &amp; Kahneman, D. <a href="http://dx.doi.org/10.1126/science.185.4157.1124">Judgment under Uncertainty: Heuristics and Biases</a> <em>Science. 1974;185</em> (4157):1124-1131. DOI: 10.1126/science.185.4157.1124.</p>
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	<li>Sharot, T, Korn, C, &amp; Dolan, R J. How unrealistic optimism is maintained in the face of reality. <em>Nature Neuroscience. 2011;14(11):1475-9.</em>
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How many decisions do you think you make during the average day? Dozens? Hundreds, perhaps? Psychologists believe that the number is actually in the thousands. Some of these decisions have resounding effects over the course of our lives (like whether or not to go to college, get married, or have kids), while others are relatively trivial (like whether to have a ham or turkey sandwich for lunch).

Why Do You Always Make Bad Decisions?

Anchoring Bias

Being Too Optimistic

You Often Make Poor Comparisons

Mental Shortcuts Can Trip You Up

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