heuristics & biases

heuristics

rules of thumb we’ve developed to simplify decision-making; sometimes they backfire in predictable ways & give rise to “biases”

biases

systematic errors in judgement

system 1

intuitive, fast, reactionary

system 2

higher-level reasoning, cognitive, slower

biases more prevalent when

system 1 is triggered

ease of recall

used as a proxy for likeliehood

errors in judgement due to ease of recall are due to:

• vividness

• recency

• repetition

vividness

notable, vivid events are easy to recall

recency

recent events are easy to recall

repetition

often discussed events are easy to recall

retrievability

errors in judgement due to retrievability are typically due to memory structure

memory structure & retrievability

we overestimate probability of an event because our memory structures make it more retrievable

base rate insensitivity

people are extremely insensitive to base rates and overweigh other available info

sample size insensitivity

people assume sample size doesn’t matter (belief in the law of small numbers”

misconceptions of chance

we fail to recognize the independence of events

2 elements in any good forecast

• past perfomance

• average performance

past performance

should be relied on to the extent that past performance is believed to signal true, underlying qualities

average performance

should be relied on to the extent that past performance is attributable to luck

regression to the mean

if any element of the performance is random, extreme performers should regress to the mean

people tend to undervalue ____ and overvalue ____ in forecasting

mean regression and past perfomance

the conjunction fallacy statistics

when A seems likely & B unlikely, people think P(A&B) > P(B)

the conjunction fallacy meaning

people overestimate the likelihood of multiple events happening at the same time

the curse of knowledge

once we know something, we find it nearly impossible to ignore it

hindsight bias

common tendency for people to perceive past events as having been more predictable than they were

why does hindsight bias happen?

relationship to curse of knowledge & consciousness wants to tell a compelling story

anchoring

we often develop estimates by starting with an initial anchor based on available info and adjust from there