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The Cognitive Biases Tricking Your Brain
Common Biases
- Actor-Observer Bias: the way the explanation of other people’s behaviour tends to focus on the influence of their personality while being less focused on the situation while being just the opposite while explaining one’s own behaviour.
- Zeigarnik Effect: when something unfinished and incomplete tends to linger in the mind and memory.
- The IKEA Effect: when our own assembling of an object is placed at a higher value than the other objects.
- Optimism Bias: makes us underestimate the cost and duration for every project we try to undertake or plan.
- Availability Bias: makes us believe whatever is more easily available to our consciousness, and is more vivid (or entrenched) in our memory.
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The Way We Delude Ourselves
Cognitive Biases are a collection of faulty and illogical ways of thinking which are hardwired in the brain, most of which we aren’t aware of.
The idea of cognitive biases was invented in the 1970s by two social scientists Amos Tversky and Daniel Kahneman, with Kahneman winning the 2002 Nobel Prize in Economics for the same.
Hyperbolic Discounting
It's a tendency to heavily weigh the moment which is closer to the present, as compared to something in the near or distant future.
Example: If you are offered a choice of $150 right now or $180 after 30 days, you would be more inclined to choose the money you are offered right now. However, if we take the present moment out of the equation, and put this offer in the distant future, where you are offered $150 in 12 months or $180 in 13 months, your choice is likely to be the latter one.
The Gambler Fallacy
It makes us certain without a doubt that if the flipped coin lands a heads up five times consecutively, it will land as tails up the sixth time. The real odds still stand at 50-50 for each flip.
The Anchoring Effect
It's our tendency to place importance on the first figure that we hear or see and tends to greatly affect our decisions, estimates or predictions.
Negotiators use this tactic and start with an extremely high or low number, anchoring the subsequent deal in their favour.
Sunk-Cost Fallacy
Sunk-cost thinking makes us stick with a bad decision due the investments already made.
Cognitive Errors
- Fundamental Attribution Error is a bias in which we put too much weight on the external attributes of the individual while accessing their behaviour, paying less attention to the external factors that can be easily measured.
- Endowment Effect is when we place an irrationally high value on our possessions, as in a way they are part of our personality and ego.
- Faulty heuristics are another form of bias, referring to our own internal shortcuts and rules of thumb by which we make judgements or predictions.
Confirmation Bias
This is one of the most common and dangerous ones, and is related to our beliefs. It leads us to ‘confirm’ what we already know, believe or suspect when any new piece of data comes in the light. If there is an alternate or conflicting piece of evidence, we tend to sideline, ignore or discount it. If it is too powerful to be ignored, it makes us experience cognitive dissonance.
People unconsciously seek to confirm their existing beliefs. To expand one's mind or prove any hypothesis, one should be looking for pieces of evidence that disprove it.
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Cognitive biases
...are common thinking errors that harm our rational decision-making.
We don't always see things as they are. We don't simply glean information through the senses and act on it; inste...
Optimism Bias
Is our tendency to overestimate the odds of our own success compared to other people's.
Overly optimistic predictions can be dangerous, leading us to waste time and resources pursuing unrealistic goals. In the real world of business, things don't always work out for the best, and it serves us well to know when conditions are not on our side.
How to control the optimism bias
- Be skeptical of your own rosy expectations for your work.
- Assume projects will be more difficult and more expensive than you initially think they will.
- Don't trust your good ideas to manifest through positive thinking - be ready to fight for them.
- Trust the numbers. Numbers are firm but fair, and getting intimate with your business's cash flow can help you make more rational decisions.
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Biases...
... specifically cognitive biases, are your unchecked tendencies to make decisions or take actions in an irrational way.
Instead of making decisions based on facts and data, you ...
Biases = shortcuts for processing information
The brain creates shortcuts in order to make fast decisions when it hits information or inspiration overload.
These shortcuts form unconscious biases so it’s easier for your brain to categorize information and make quick judgments over and over again.
Self-serving Bias
This means that when something good happens, you take the credit, but when something bad happens, you blame it on external factors.
Self-serving bias may manifest at work when you receive critical feedback. Instead of keeping an open mind, you may put up a defense when your manager or team member is sharing feedback or constructive criticism.
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Confirmation bias
People don't like to rethink their beliefs once they are formed.
We would rather ignore information that would challenge our ideas than engage with threatening new information. This is ...
Availability heuristic
Our brain likes to take shortcuts to solve a problem when normal methods are too slow to find a solution.
The problem with this approach is that frightening events are easier to recall than every-day events. We should be aware that alarmist news broadcasts don't help in an accurate sense of events.
Anchoring
We have a tendency to stubbornly hold on to a number once we hear it and gauge all other numbers based on the initial number, even if the information is not that relevant.
For example, if customers are limited to 'four per customer' they are more likely to buy four, even if they did not initially intend to do so.
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