This article started off as a book review actually for the Optimizers Community members and then I decided since it’s such a common topic these days that I would release it as a blog post so that you all can benefit from it as well.
In the last 6-8 months the topic of cognitive bias has turned into a upward trend again and with people like Tai Lopez constantly talking about how he learned it from Charlie Munger the searches are going through the roof.
When it comes to behavior and understanding why we do what we do, there are unconscious patterns and loops that we predominately all fall for. Naturally no one wants to admit that they “fall” for things like this but it’s happening at a level which we can’t even “see” or consciously keep an eye on.
Now with training that is a different story but most people don’t even know this is happening so awareness is the first step.
There are over 120 cognitive bias that affect us, I will highlight some of my favorite and most common in this post.
12 Cognitive Bias
Association Bias- We make false connections based off random and non-associated facts. Pavlov’s work with salivating dogs comes into play with this bias, so does “shoot-the-messenger” syndrome as we associate bad news with the one who delivered it.
Survivor bias- There are far more people who fail vs succeed, yet triumph is made more visible than failure in media etc so people massively overestimate their chances of succeeding.
Availability bias- We create a picture of the world based on examples that most readily come to mind. This is downright scary!
Outcome bias- We tend to evaluate decisions based on the end result rather than the decisions made along the way.
Liking bias- The more we like someone the more likely we are to buy from them or help them. Research shows we see people as pleasant if they are outwardly attractive, they are similar to us in terms of origin, personality and interests and lastly- they like us! This one is really simple, yet we still all fall prey to it.
Hindsight bias- We can call this the “I told you so” bias, because in retrospect everything seems clear and inevitable.
Story bias- Where did you come from, where are you now and where are you headed, similar to the hero’s journey ,before science we had stories to explain things.
Confirmation bias- This is the mother of all misconceptions, it’s the tendency to interpret new information in a way that lines up with our existing theories and beliefs! In other words we filter out any new information that contradicts our existing views. This is where 99% of politics has gone wrong this last year!
Self serving bias- In short we attribute success to ourselves and our efforts and shortcomings are blamed on external factors. If things are going well- I did it! If things aren’t going well, it’s because of that thing out there!
Social Comparison bias- Fostering those who seem better or more talented than you, attempting to stifle or be harder on them because you fear they are better and will outshine you.
Action bias- In new and shaky circumstances we feel compelled to do something/anything even if it achieves nothing. Think of the trigger happy new recruit police officer who shoots too soon.
Omission bias- Simple definition: You have intelligent information yet do nothing with it and the outcome to others is affected because of your lack of action.
This is where in a situation misfortune might be averted with direct action, but we don’t do anything and that insight in this intelligible situation doesn’t motivate us the way it should. This is very difficult to detect overall.
23 Other Cognitive Effects & Fallacies
False causality- Correlation is not causality, sometimes what is presented as the cause is in fact the effect and vise versa.
Take shampoo XYZ that claims to ‘make hair stronger’, could that be a fact or merely due to the fact that more people with thick hair use it and on the bottle it also says ‘for people with thick hair’? Correlation vs cause….
You see this everywhere, everyday it’s affecting our decision making ability.
Halo effect- This occurs when a single aspect or quality of a company or person dazzles us and we assume that because of this one thing that everything is great! The stock price is trading so high that we assume the CEO is perfect in/out of business life, their customer service is amazing, hold superior strategic advantage etc.
You see many companies that yield this power over the media and people who do as well, Amazon, Apple, Jeff Bezos, Larry Page to name a few. Steve Jobs was amazing at cultivating this!
Edward Lee Thorndike discovered the halo effect over 100 years ago! He found that a based on a single impression that influences us positively or negatively it creates an imprint which is disproportionate (beauty, social status, etc).
There are many many studies now that showcase our belief that good-looking people we deem more pleasant, trustworthy and intelligent. This has been shown to affect our judgement from school teachers giving better looking students good grades all the way to famous people standing by products on TV, influencing us to buy!
The halo effect can also work with negative consequences like stereotyping based on age, gender and race which leads to great inequality.
A great example of this is when you fall head over heals in love with Mr/Mrs right and all you see is how perfect, kind, warm hearted and awesome they are even after all your friends point out clear shortcomings and negative attributes of that person.
Once you sober up off the love, you once again see clearly that it was doomed from the start due to these “now obvious” character traits.
This is exactly what it sounds like, in situations of small size companies or sample sized data, the numbers will always be skewed.
For example the saying “Startups hire smarter people” isn’t true per se’, many startups are small which skews the IQ ratio among its workers, plus considering that there is either upper level management with an assumed higher IQ and lower level dev/support/staff which have a lower IQ, the numbers are polarizing giving them both the best and worst.
Anything in small sample size will give you a wrong result or a skewed result.
Winner’s curse- This was originally related to the oil industry in Texas oil fields were routinely up for grabs in auctions. This usually led to people overpaying as the true costs was often really hard to figure out and asses. If an oil field was valued at between $10-$100MM you can see how people might get sucked into a bidding war to win it.
While most people celebrate “winning the auction” most times they in fact loose. That is also why almost everything is setup to be a bidding economy, look at everything from labor jobs with big job posting sites, ebay and anything you can imagine on that site, heck even an IPO is a glorified auction.
ALL paid ad networks are based on bidding style auctions where the people willing to pay the most win.
It’s easy to loose your cool and overbid in the heat of the moment, no matter if you are at the auction live and in person or online trying to win that new camera on Ebay.
If this cannot be avoided, then set a max price and don’t waiver from it. Warren Buffett said this about auctions: “Avoid them at all costs”.
Loss Aversion- The emotional feeling of a loss is about double that of a similar gain, this has been scientifically proven now.
This is used in sales messages all the time and in fact registers deeper emotionally to talk about how product XYZ will help them dodge the disadvantages vs talking about the advantages.
The fear of losing something motivates people more than the prospect of gaining something of equal or similar value.
Motivation crowding- When people do something for well-meaning and non-monetary reasons, out of the goodness of their hearts, so-to-speak- payments throw a wrench into things.
When things are done with well-meaning and then a payoff or bribe is attempted it dilutes the good intentions that were the driving force.
Groupthink- This is where a group of smart people make reckless decisions because everyone aligns their opinions with the supposed consensus. These individuals may have rejected if there wasn’t the peer pressure put on them.
Psych professor Irving Janis has studied this extensively and noticed patterns: Members of a small close-knit group cultivate team spirit through subconscious illusions. One of these illusions is invincibility: “If both the leader and all the members in the group are confident the plan will work then luck will be on our side”.
Next comes the illusion of unanimity: If others are of the same opinion, any dissenting view must be wrong. No one wants to be the naysayer who destroys team unity. Finally each person is happy to be a part of the group. Expressing reservations could mean exclusion from the group.
Gamblers fallacy- This refers to a “balancing force in the universe” that says the more times the roulette ball falls on black, it’s bound to fall on red. Only thing is, the ball doesn’t remember how many times it has landed on black.
People sink hundreds of thousands of dollars over a lifetime playing the lotto and mega millions only to lose week in and week out. Some will keep detailed records of the numbers that have hit and play only the numbers that have hit the least, some will play the same winning numbers again, others random arrangements of numbers- again the numbers don’t remember when they last were picked, so both of the polarity extremes are yet another example of Gamblers Fallacy.
The Gambler’s Fallacy says that something must change, I flip a coin and 3 times in a row it’s heads. Most people would bet tails the next flip but heads has just as much of a chance of showing up again.
Base rate neglect- A disregard for fundamental distribution levels, BRN is one of the most common errors in reasoning. Basically it’s ignoring a fundamental statistic over details, emotion or impulse.
Virtually all journalists, politicians and economists fall for it on a regular basis!
Exponential growth- Most humans are flat out bad at exponential growth, intuition will not serve you well here because fact is we weren’t trained well enough in this area. Simple math has always been true dating back to the oldest parts of our brain- meaning if I hunt 2 animals then I will have twice as much meat to eat. If I garden/pick 2 trees daily then I have double what everyone else has.
We have very little abilities to figure out compounding numbers or exponential growth.
Classic Example is the following…
A: I give you $1,000 dollars per day for the next 30 days
B: I give you $0.1 cent the first day, $0.2 cents the 2nd day, $0.4 the 3rd day etc. (basically doubling it each day)
A would give you $30,000 at the end of 30 days, where as “B” would give you more than $10MM.
Most people will without a doubt pick A as it seems like the obvious winner when in fact its B. This has been tested on a large scale with experiments in psychology and the results are staggering.
Remember that nothing that grows exponentially grows forever- guaranteed!
When it comes to growth rates, don’t trust your gut- take a step back and get a calculator.
Forecast illusion- False prophets are all around us, making claims, predictions and forecasts that for the most part are not all that better then a random forecast machine. Philip Tetlock analyzed 28,361 predictions from 284 self appointed professionals to find they fared only marginally better than a random forecast generator.
“There are two kinds of forecasters: those who don’t know and those who don’t know that they don’t know”- John Kenneth Galbraith
The fact that 10 years ago there were 60,000 economists that were all full time employees should tell you something. If they were that good at predicting wouldn’t they have millions by now?
There are no consequences to economists when they are wrong, so it’s created a win-win scenario for them, to have free rein on making as many predictions as they want without ever any ramifications.
This also promotes them to make even more predictions as the more they make coincidently the more accuracy they will have by sher law of averages.
Always be skeptical when you hear predictions and ask self actualizing questions like the following…
How many predictions has this person made in the last 12-24 months? How accurate have them been? What is their success rate basically?
What do they stand to gain by making this prediction? Are they emotionally invested, financially invested in some way to this prediction? Meaning will they lose their job if they weren’t to make predictions constantly or are they a guru that makes their living off making predictions?
Black Swan- This phenomenon was originally coined after Willem de Vlamingh spotted a black swan for the first time while on an expedition to Australia. Up till that point there was only believed to be white swans.
Is an unthinkable event that massively affects your life, your career, your company and your country. There are both positive and negative black swans.
Black swans would be things like Facebook, the Internet and Uber and would relate to people like Usain Bolt, Larry Page and anyone else who’s income grew by a factor of 10,000.
Overconfidence effect- We systematically overestimate our knowledge and our ability to predict- on a massive scale. It doesn’t deal with weather single estimates are correct or not. Rather, as Taleb puts it, it measure the difference between what people actually know and how much they think they know.
Be aware that you tend to overestimate your knowledge, be skeptical of predictions, especially if they come from so called experts and with all plans favor the pessimistic scenario. This way you have a chance of judging the situation somewhat realistically.
The it-will-get-worse-before-it-gets-better fallacy- This is a variant of the so-called confirmation bias, if the problem worsens then the expert who predicted it is correct and if it gets better quicker then that can be attributed to the experts prowess.
Think of when you go to the doctor or in business you bring on a consultant, those are the situations where we see this fallacy hitting hardest.
When you hear the saying “it will get worse before it gets better” that should be a warning sign to look deeper into what’s going on. Now things like a career change or business restructuring really do often times “get worse before getting better” so just use this as an indicator that you should look more closely.
Inability to close doors- Most people want to have as many irons in the fire as possible, “keep their options open” as they say in business or “playing the field” in dating.
This irrational behavior only exists because outside of financial markets where there is a real and tangible cost it seems we get a free pass.
This is an illusion, everything comes at a price, but the price tag is often hidden and intangible- each decision costs mental energy, resources, thinking power and time away from other things.
In personal development this is coined as loops, and when it comes to staying in an empowered state, the collective go-to-process for this is to close as many loops as possible to increase capacity.
What is also referenced around this topic is stories throughout history of leaders “burning the ships” so their soldiers had 2 simple choices, win or die! Cortez is most notably known for this but many others have done it throughout history as well.
Domain Dependence- This has to do with being really great at something but being absolutely blind to it in your own life or situation.
For example I am sure you know someone who is really great at something yet cannot for the life of them apply that expertise to their own life OR apply it to another area of their life.
Illusion of control- This is the tendency to believe that we can influence something over which we have absolutely no sway.
I chose to write about this one as it personally conflicts with beliefs that I hold but nonetheless there are situations always where this applies.
For example, I believe in energetic influence, vibrations, karma etc which all break this fallacy because it’s dealing only in the 5 senses and the black and white realm let’s call it.
Cognitive dissonance- This explains the irrational reaction that happens when people don’t want to discern between the facts of a situation, rather they throw their arms up and claim they didn’t care anyway.
Let’s say you try and fail at something, most people instead of sitting down and really breaking down the facts and mapping out what really went wrong and happened, they will claim how they didn’t care, or blame it on external reasons.
This is a mix of pride, ego and not wanting to look stupid all mixed into one in a feeble attempt to save face.
Social Proof- Often coined “herd mentality” is one of the biggest things used today in sales and marketing to sell more product and service. In short if a group of people say this is “good” there is a good chance you will too. Social proof works in many ways meaning, it could be the number of people all getting behind an idea, person or concept or the weight of the people (social figures, authorities etc) that sway more to come on board.
Example: You are walking down the street and you see a big group of people all looking up, what are you going to do? Probably look up.
Everyone in your social circle is talking about investing in Apple stock, you hear it on the news, see a few social media posts about it again all from trusted sources, there is a high chance you will want to invest now too!
Salience Effect- A prominent feature, standout attribute, a particularity or something that catches your eye. This ensures that outstanding features get more attention then they deserve.
This affects both how we interpret the past and how we imagine the future.
There are countless examples of this everyday, when you see the media focus on a company and praise them daily/weekly/monthly/yearly like Apple, Amazon, Tesla, etc these are all examples.
They have found something that stands out and praise the person or company for it. Its no wonder that Google and its head staff, Amazon and its head staff, Apple and its head staff, Tesla and its head staff ALL get regular and consistent news coverage.
This is Salience effect at work!
Coincidence- The inevitability of unlikely events, or rare and unlikely things happening that are very possible. I mention this effect because it clashes with Synchronicity which isn’t widely accepted in mainstream science or logical thinking for that matter. Remember if it’s out of the realm of the 5 senses then most people will discredit it.
Coincidence can be mathematically proven in many ways, things like same name or birthday are actually more common than you may realize. Where I personally feel this starts to fall apart is when you have something that happens in such a way that is so so so rare, we are talking like a 0.0000001% of happening and it does, I cannot write off that significance to coincidence.
Framing- It’s not what you say but how you say it! Framing is the old school psyche term that has been adopted for modern day personal development. It is simply the tonality and words you use to ask a question or convey a point, which directly affect those in the conversation.
Example: “The kitchen is a mess!”
“Hey it would be really great if you could clean up the kitchen, it’s a mess.”
Framing plays a role in everything you read, from the blog post to the FB post, framing is at work.
Affect Heuristic- This relates to a momentary judgement, something you like or dislike- based on one-dimensional impulse, aka gut-check response. The Affect Heuristic puts risks and benefits all on the same sensory thread.
This happens all around us each day with topics like Donald Trump, Vaccinations, GMOs, Global warming etc. These are super charged topics that cause people to just react without actually using logic.
I suggest you bookmark this page and come back from time to time to ensure you’re embedding the awareness deep inside and therefore are less likely to fall for these fallacies. If you think this will help a friend or family member, forward it over to them or share.
Art Of Clearly Thinking- Rolf Dobelli
Jameson Brandon personal experience