13 Cognitive Biases: Reasons Behind Your Bad Decisions

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Our bad choices and irrational behaviors are frequently the results of our closely held biases.

Cognitive biases are mistaken beliefs based on half-baked information. We make them frequently while thinking we are wisely making our decisions based on those beliefs.

These decision errors, however, become obvious only when we have landed in a muck of terrible results and are being fleeced for our flawed business strategies. Meanwhile, Nutt (2002) affirms that 50% of all business decisions fail.

What Is A Cognitive Bias

A cognitive bias is our tendency to make snap judgments based on little information, which influences how we view a person’s feelings, thoughts, opinions, and actions. It is the human fallacy of drawing conclusions or making decisions without taking into account all the aspects of a situation.

Why do we have biases? Experts believe our cognitive biases find triggers in our unconscious urge to satisfy some psychological need. This urge is so strong that even a period of self-reflection cannot impact our decision.

There are many types of cognitive biases, some more common than others, and it is difficult to list all of them here. Here we take up some of the common ones that can lead you to make horrible decisions.

[Your mind wanders 50% of the time. But it’s not doing it all wrong. Psychologists have found at least three most life-changing benefits of mind-wandering that you aren’t aware of.]

cognitive biases & bad decisions

13 Cognitive Biases That Lead To Bad Decisions

A decision marks the end of deliberation and the start of the action. Three things that most significantly impact our decision-making processes:

  1. Selective perception (tendency to ignore things that cause emotional distress or contradict our views)
  2. Public opinion (ideas and opinions of others that shapes how we decide what’s good or bad for us)
  3. Heuristics (mental shortcuts that shorten our decision-making but often lead to cognitive biases)

Let’s look at thirteen cognitive biases and how they warp our decision-making abilities.

1. Sunk cost bias

Sunk cost bias in decision-making is a psychological phenomenon that relates to the time and money that has already been invested, which makes it difficult to abandon an endeavor.

Also called sunk cost effect or sunk cost fallacy, it is a “tendency to continue an endeavor once an investment in money, effort, or time has been made.”

This is where you justify the further investment based on previous investments, despite new evidence indicating that the decision was actually incorrect.

This bias creates a need for people to justify the time and money they have put into something by investing even more time and money in order to justify their original investment.

This is seen in many cases when people have to make the decision whether they should continue with an endeavor, or they should instead focus on what might bring them higher returns.

2. Endowment effect

The endowment effect says that the more people think something is worth, the more of it they want.

This is simply putting a higher value on what you own than what you don’t. For example, you may decide that a dollar in another person’s pocket is worth 90 cents, but the same dollar in your pocket is worth 110 cents.

This can be seen in many experiments with both buyers and sellers. The endowment effect also occurs when someone possesses something valuable, but it is taken away from them without compensation.

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The endowment effect can be found when people are given an object and then evaluate its worth in comparison to when they were not given the object in question. The objects that are given often have a higher perceived value than those that are not, regardless of their original price or market value

A good trick to counteract this bias is to see the apparent inconvenience of giving up an object as lesser than the usefulness of continuing to hold it.

3. Status quo bias

In some ways, we all desire to keep things the same. This emotional need to stick to previously made decisions is a natural bias.

Status quo bias is the tendency of people to like things to stay in the current state. This preference comes from their familiarity with present and default situations.

Familiarity plays a huge role in status quo bias because when people are exposed to a thing for a long time, they get used to it so much that they don’t want anything else in its place.

Loss aversion, the natural tendency to prefer avoiding losses to making similar gains, is the primary reason behind a status quo bias. People are inherently afraid of the unknown, which they think might bring in a loss.

John Travolta said he would never want to take on any role other than his iconic character in his comeback film, “Pulp Fiction.” That was somewhat of a status quo bias.

“A ‘please’ would be nice.” — Vincent Vega, Pulp Fiction

However, status quo bias is not necessarily always bad because it can be helpful when one is trying to maintain a consistent image or a brand.

4. Confirmation bias

We have a tendency to accept information more readily when it confirms our beliefs.

Confirmation bias reflects our desire to support or confirm our previously held views while dismissing those that contradict them. We are naturally prejudiced against new ideas and points of view. It causes us to underplay what we want to ignore while exaggerating what we already know, whether in relationships, politics, or business.

Letting cognitive bias cloud our opinions and judgments is like operating out of an echo chamber. It leads us to follow only those on social media who agree with us. It compels us to seek out news sources that tell things from the perspective to which we subscribe.

To combat confirmation bias, you need to look for alternative viewpoints and ask yourself what would drive you to change your mind.

5. Hindsight bias

We tend to see events as more predictable than they are.

The hindsight bias, also known as creeping determinism and the knew-it-all-along effect, is the tendency to see events as more predictable than they actually are, forecasting the result that cannot be predicted.

It is a retrospective prophecy, where one declares something was bound to happen, but only after it has happened.

Hindsight bias operates on three levels. The first is memory distortion, which occurs when a person distorts and misremembers an earlier opinion or judgment. Second, they believe the occurrence was inevitable. Third, the event’s predictability was so certain that they could have predicted it.

A person suffering from this bias may have a mistaken sense of superiority, an overvaluation of their intelligence, or arrogance about the effectiveness of their ideas and decisions. It causes people to bury past reservations, leading them to risky and ill-informed decisions.

To counteract this, we can record our predictions and pause to evaluate our predictions.

6. Anchoring bias

This bias is being influenced too much by the first piece of information we hear.

Anchoring bias is the tendency to rely too heavily on the first piece of information offered (the “anchor”) when making decisions.

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Anchoring bias occurs when people rely too heavily on the initial piece of information offered (the “anchor”) when making decisions.

Anchoring typically occurs over time and in overly controlled situations, making it difficult to control and counterbalance.

This is especially problematic In negotiations. To combat this, we can take a step back to postpone our decision and use it offensively to build the anchor while negotiating with others.

7. Misinformation effect

Have you ever recalled an event differently than another person in the same situation? Then you could have added details that never happened.

The “misinformation effect” is a term used in cognitive psychology to explain instances in which misleading data is purposefully included in a historical account. The “misinformation effect” describes how we may distort a person’s understanding by introducing false data after they have received the correct information.

Elizabeth Loftus’ study has shown that memory is far more easily influenced than previously thought. Research into this bias shows how psychologically vulnerable we are to fake news, false memories, and entrenched cognitive biases.

To fight this bias, we must actively ask questions rather than passively consume information served to us, and we must listen patiently to other people’s points of view.

Of course, admitting that we can be swayed by fake and tainted news is the first step toward minimizing its effect.

8. Actor-observer bias

Have you ever made a mistake and blamed an outside force? But then blamed the person when they made the same mistake?

For example, you may tell others that you failed the test due to post-viral illness, but you may also tell others that someone else failed because they didn’t study.

In social psychology, actor-observer bias, also known as actor-observer asymmetry, refers to our tendency to attribute the other person’s conduct to his own disposition while attributing our own behavior to the situation we’re in.

Depending on whether we are the actor or the observer in a situation, we make different attributions. We (“actor”) see our own intentions objectively, but evaluate the intentions of others (“viewers”) ambiguously.

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This bias reflects how people use different narratives to make sense of their own v/s others’ lives.

As a result, they often do not hold themselves accountable for their actions, instead attributing them to someone else’s action or intentionality.

Actor-observer bias often gets confused with fundamental attribution error (FAE). However, FAE doesn’t take into account our own behavior.

9. False consensus effect

We overestimate the extent to which people agree with us. We spend time with people who share our ideas. Furthermore, we don’t seek out other people’s perspectives.

False consensus effect (FCE) is a phenomenon in which people falsely believe that their judgments, beliefs, behaviors, and opinions about an idea or statement are more popular than they actually are. FCE is often attributed to our desire to view our thoughts and actions as appropriate, normal, and correct.

A typical example of the false consensus effect is the following sentence:

“My own opinion on this issue is not important, what matters is how many people have the same opinion as me.”

It is so natural for us to assume that others have had similar experiences and opinions to us. It’s critical to recognize that not everyone thinks the same way we do.

10. Halo effect

Have you ever met someone you didn’t like? It’s possible that this is the halo effect.

Halo effect bias is allowing your first impression of someone to impact how you think about them overall. We do this because we want to be right. As a result, we unknowingly seek ways to confirm our first impressions.

Halo effect is a type of reasoning error in which an impression made by one particular attribute or trait is allowed to impact several judgments or ratings of unrelated aspects.

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It occurs when people allow their feelings about a single feature to influence how they rate other, unrelated aspects.

For example, if a person likes a certain singer for their voice and style of music, the listener might also have a positive reaction to the public persona of the same artist. This is because our good impression of one thing spills over to other related things.

11. Self-serving bias

Self-serving bias (SSB) is a bias in which an individual perceives his or her own actions to be more beneficial than others.

A person may believe the success of their work is due to their own hard work and abilities, when in reality, they are just lucky.

You passed because you are intelligent, but you failed due to an external force. Self-serving bias protects our self-esteem, but it also allows us to engage in malicious behavior in which we blame others for our personal failures.

This can also be seen when someone believes that they are less likely to fail than others when in reality, their chances of failure are exactly the same.

Self-serving bias can occur when someone feels like they need to put themselves in a positive light to maintain their self-esteem or self-worth.

elf-serving bias protects our self-esteem, but it also allows us to engage in malicious behavior like blaming others for our failures.

12. Availability heuristic

The availability heuristic is a mental shortcut that relies on how easy it is to recall an event or item. A person will estimate the probability of an event happening based on the ease with which instances of the event come to mind.

The availability heuristic can also be called frequency or familiarity heuristic. The more we know about something, the more likely we consider it possible.

This is one of the most common cognitive biases and can be seen in many people’s opinions and behaviors..

We can avoid this by looking at the trends.

13. Optimism bias

This is our tendency to overestimate the likelihood of pleasant things while underestimating the probability of terrible things. When we have this bias, we frequently overlook the risks.

Optimism bias is a cognitive bias that produces an excessive degree of optimism. It is related to the concept of positive illusions.

A person with optimism bias perceives themselves to be less at risk than others. For instance, people with optimism bias will overestimate their odds of winning a lottery, being in a car accident, or being diagnosed with a serious illness.

Final Words

A cognitive bias carries a high possibility of leading us to wrong conclusions and sloppy actions.

But there may also be a positive side to our biases. A cognitive bias, like sunk cost bias, could be the reason for our success by allowing us to overcome the fear of loss aversion, and pushing us to take more risks in our business ventures. Often, success is a result of such grit in the face of losses.

Finally, people most likely have a good opinion of others who are similar in some way — for example, they might have similar political beliefs or enjoy the same activities. Social psychologists call this Social Similarity-Attraction bias.

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Author Bio: Written and reviewed by Sandip Roy—a medical doctor, psychology writer, and happiness researcher. Founder and Chief Editor of The Happiness Blog. Writes popular science articles on happiness, positive psychology, and related topics.

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