COGNITIVE BIASES

Heuristics

• Using “rules of thumb” to simplify decision making.

• Heuristics are mental shortcuts or rules of thumb that simplify decision-making and problem-solving.

Overconfidence Bias

• The tendency to overestimate one's knowledge, abilities, or control over events, leading to excessive confidence that surpasses actual accuracy.

• It includes overestimation of performance.

Immediate Gratification Bias

• Choosing alternatives that offer immediate rewards and that to avoid immediate costs.

• The preference for smaller, immediate rewards over larger, delayed rewards, often leading to impulsive decisions that favor short-term pleasure at the expense of long-term benefits.

• Watching a movie is more rewarding than graduating for now.

Anchoring Effect

• Fixating on initial information and ignoring subsequent information.

• The cognitive bias where individuals rely too heavily on an initial piece of information (the "anchor") when making decisions, even if that anchor is irrelevant or misleading. This skews judgment and estimation.

• If a car salesman first shows a customer a car priced at $30,000, the customer might perceive a $25,000 car as a good deal, even if $25,000 is still expensive for that model.

Selective Perception Bias

• Selecting organizing and interpreting events based on the decision maker’s biased perceptions.

• The tendency to perceive and interpret information in a way that aligns with one's existing beliefs or expectations, ignoring contradictory data.

• A sports fan may only notice and remember plays that favor their team while ignoring mistakes or poor plays made by the same team.

Confirmation Bias

• Seeking out information that reaffirms past choices and discounting contradictory information.

• The tendency to search for, interpret, and remember information that confirms pre-existing beliefs while disregarding evidence that challenges them.

• During hiring, a manager who believes an employee is excellent looks only for evidence supporting this view, ignoring any flaws (halo effect)

Framing Bias

• Selecting and highlighting certain aspects of a situation while ignoring other aspects.

• The way information is presented (framed) influences decision-making and judgments. Different presentations of the same facts can lead to different conclusions

• People are more likely to choose a medical treatment described as having a "90% survival rate" than one described as having a "10% mortality rate," even though both mean the same thing.

Availability Bias

• Losing decision-making objectivity by focusing on the most recent events.

• The tendency to judge the probability or frequency of events based on how easily examples come to mind, often influenced by recent exposure or vividness.

• After seeing news reports about airplane crashes, a person may overestimate the dangers of flying, despite it being statistically safer than driving.

Sunk Costs Errors

• Forgetting that current actions cannot influence past events and relate only to future consequences.

• The inclination to continue investing in a decision based on prior investments (time, money, effort), even when future costs outweigh benefits.

• A person invested a lot in graphics course but they got a job in banking, they rejected it because of graphics investment.

Self-Serving Bias

• Taking quick credit for successes and blaming outside factors for failures.

• The tendency to attribute successes to internal factors (like one's own skill) and failures to external factors, protecting self-esteem.

• Common in groups where the loss includes everyone, but the success is for themselves.

Hindsight Bias

• Mistakenly believing that an event could have been predicted once the actual outcome is known (after-the-fact).

• The tendency to see past events as more predictable than they actually were after the outcome is known.

• Some people believe that a team was to lose the match when they lose it, despite not knowing the odds, prior.

Additive Bias

• The tendency to solve problems through addition, even when subtraction is a better approach.

• A bias where people incorrectly combine information or probabilities in a way that leads to systematic errors, often by adding probabilities that should be multiplied or vice versa.

• Some people believe that working harder will solve the problem, when taking a rest is the better approach.