Scribd
Upload
18 views

Biases in Decision Making

Uploaded by

akankshabhardwaj111
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
18 views

Biases in Decision Making

Uploaded by

akankshabhardwaj111
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 4

Study Notes

Biases in
Decision Making
Biases in Decision Making

Introduction

Psychologists Amos Tversky and Daniel Kahneman developed the concept of cognitive bias
from their 1970s research into why people struggle to reason and judge objectively in certain
situations.

Cognitive bias, also known as psychological bias, can be defined as a set of predictable mental
errors that arise from our limited ability to process information objectively. It can result in illogical
and irrational decisions, and it can cause you to misjudge risks and threats. It is the tendency to
make decisions or take action in an illogical way, caused by our values, memory, socialization,
and other personal attributes.

Biases are prejudices or decisions that are not fair and balanced due to focus on small bits of
information instead of the entire amount of information.

Many times, the decisions may also suffer from Judgment errors. These are business errors or
mistakes that occur due to poor decision making which are based on bad logic and reasoning.

Types of Biases

Confirmation Bias - Confirmation bias happens when you look for information that supports
your existing beliefs and reject data that goes against what you believe. This can lead you to
make biased decisions, because you don't factor in all the relevant information.

Anchoring - Anchoring is a cognitive bias that describes the common human tendency to rely
too heavily on the first piece of information offered (the "anchor'') when making decisions.
During decision making, anchoring occurs when individuals use an initial piece of information to
make subsequent judgments. This bias is the tendency to jump to conclusions – that is, to base
your final judgment on information gained early in the decision-making process. It is like a "first
impression" bias.

Overconfidence Bias - This happens when you place too much faith in your own knowledge
and opinions. You may also believe that your contribution to a decision is more valuable than it
actually is. You might combine this bias with anchoring, meaning that you act on hunches,
because you have an unrealistic view of your own decision-making ability.

Halo Effect - This is the tendency for a person's positive traits to "spill over" from one area of
their personality to another in others' perception of them. In other words, it's hard to believe that
someone you like or trust in another context could be wrong now.

Horn Effect – It is the opposite of the horn effect when someone's negative traits cloud your
judgment of them or their abilities.

Gambler's Fallacy - With the gambler's fallacy, you expect past events to influence the future.
Often, the longer the run, the stronger your belief can be that things will change the next time.

2
Biases in Decision Making

But in fact, outcomes are highly uncertain. The number of successes that you've had previously
has little or no bearing on the future.

Fundamental Attribution Error - This is the tendency to blame others when things go wrong,
instead of looking objectively at the situation. You may blame or judge someone based on a
stereotype or a perceived personality flaw. Fundamental attribution error is the tendency to
place blame on external events.

Stereotyping bias: Stereotypes are assumptions made about a group of people (here country)
and are applied to individuals, irrespective of their personal characteristics, because of their
affiliation with a certain group. Stereotypes can be positive, negative or neutral

Groupthink - Groupthink is a psychological and sociological phenomenon in which members of


a group will conform to majority opinion to maintain group harmony rather than stating their own
opinions. Groupthink is differentiated from simple group consensus by its often illogical or poorly
thought through conclusions. Groupthink often results in an irrational or dysfunctional decision-
making outcome.

Bandwagon Bias - Bandwagon bias is a form of Groupthink . Here, the tendency is to form an
opinion or take action because others have already done so. The probability of you "hopping on
the bandwagon" increases as others adopt an idea.

Mere Exposure Effect - According to Robert Zajonc's 1968 study, the mere exposure effect, or
"familiarity principle," occurs when repeated exposure of the individual to a stimulus object
enhances his attitude toward it. In decision making, this bias can manifest itself as a preference
for opinions, people or information that one has already seen or heard before.

Hindsight Bias - hindsight bias is when someone believes that they accurately predicted the
outcome of a decision before it was made, even if they did not. Researchers Neal Roese and
Kathleen Vohs argue that hindsight bias occurs when people feel that a certain outcome was
obvious and expected, but only after the event has taken place.

Hindsight bias can be especially problematic when you want to understand why a decision went
wrong, as it can be hard to look back objectively. It can also cause problems when you need to
analyze or interpret results in business experiments, because you might view your findings as
"predictable" once your tests are complete.

Dunning-Kruger Effect - The Dunning-Kruger effect refers to people's ability to accurately


assess their own and others' competence. In general, low-skilled people tend to overestimate
their own abilities, and highly skilled people tend to underestimate theirs.

Framing effect is an example of cognitive bias, in which people react to a particular choice in
different ways depending on how it is presented

Escalation of commitment – Also known as commitment bias, it describes our tendency to


remain committed to our past behaviors, particularly those exhibited publicly, even if they do not
have desirable outcomes.

3
Biases in Decision Making

Availability Bias - Availability bias suggests that decision makers use the information that is
most readily available to them when making a decision. This comes at the expense of looking
for additional information that could lead to a further understanding of the situation. As such, a
decision is made on limited or superficial information.

Randomness error/Randomness bias - Randomness bias is the natural tendency to see


patterns in random data. For example, a supporter of a sports team feels that the team won a
match when he wore a particular t-shirt and then continues to wear it for every match.

Representative bias is when a decision maker wrongly compares two situations because of a
perceived similarity, or, conversely, when he or she evaluates an event without comparing it to
similar situations. The decision maker believes that the situation represents all of the
characteristics of the population of which it is a part. This is similar to stereotyping.

Selective Perception - This is the tendency to see a particular situation or issue from a chosen
perspective. This is related to the team-based mentality. We see all situations or issues through
a common lens that influences our ability to understand alternative or conflicting points of view
or alternatives.

Self-Serving Bias - This is one’s tendency to attribute the positive results of a decision or
situation to one’s own actions or decision. Likewise, it causes individuals to attribute negative
consequences to factors outside of our control. This can cause an inability to accurately assess
or affect a situation through decision making.

You might also like