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Cognitive Bias: How Your Mind Plays Tricks on You and How to Overcome That
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.
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Key Ideas
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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Key Ideas
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 ...
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.
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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Key Ideas
Decision-making errors
Most decision-making errors boil down to:
- logical fallacies (over-generalizations, comparing apples and oranges, circular thinking)
- limiting beliefs (underes...
Confirmation Bias
If you already have an opinion about something before you've even tried to figure it out, chances are you'll over-value information that confirms that opinion.
Think about what kinds of information you would expect to find to support alternative outcomes.
Attribution Bias
The “fundamental attribution error,” is when we excuse our own mistakes but blame other people for theirs.
Give other people the chance to explain themselves before judging their behavior.