Overcoming Obstacles to Critical Thinking

Selection Bias

Choosing data in a way that leads to misleading results

Example of Selection Bias

“Only sending out customer satisfaction surveys to online customers and excluding in-store customers”

Availability Bias

When you overestimate likelihood or importance of events based on how easily they come to mind

Example of Availability Bias

“Focusing on fraud risk areas that have been in recent headlines but ignoring less memorable ones that still hold significant risks”

Anchoring Bias

Relying too heavily on the first number or piece of information that you encounter

Example of Anchoring Bias

“Choosing Mug B over Mug A because Mug B says that it used to be $1000 but now it’s $300, whereas Mug A only states that it’s $300 without the extra information”

Confirmation Bias

Seeking or interpreting evidence in ways that support our pre-existing beliefs

Example of Confirmation Bias

“When management believes that a certain project will definitely be profitable and only looking at optimistic sales forecasts rather than including the potential risks involved”

Confusing Correlation and Causation

When you mistake a statistical relationship as evidence of one variable causing another

Example of Correlation and Causation

“Thinking that inflation going up and Mr. Beasts’ views going up are connected”

Rush to Solve Trap

Jumping to a solution quickly without fully exploring the problem or finding alternative explanations

Example of Rush to Solve Trap

“Spotting an imbalance in a trial balance and immediately assuming its a simple data entry error rather than investigating possible fraud or system issues”

Groupthink Trap

When you hold back on your own opinion because everyone else is thinking something else

Example of Groupthink Trap

“A junior auditor not challenging a senior partner’s assumptions”

Sunk Cost Fallacy

Following through with something that you’ve already invested a lot in, even when it might be better to just give up

Example of Sunk Cost Fallacy

“Continuing to spend money on an expensive ERP system implementation that is a poor fit for the company because $5 million has already been spent”

Overconfidence Bias

Overestimating the accuracy of one’s knowledge or judgment

Example of Overconfidence Bias

“An analyst is overly certain about the value of goodwill without accounting for the volatility in market conditions”