Is the tendency for people to base their judgments on information that is easier to recall?
What are the Common Biases & Errors in Decision-Making?Some common decision-making errors and biases are as follows: Show
Overconfidence BiasIndividuals overestimate or have excessive confidence in their ability to predict or foresee future events. This will cause the decision maker to unsupported or risky decisions. Hindsight BiasThis is the tendency of individuals to see past mistakes or occurrences as obvious. After the event has occurred, individuals believe that they did or should have seen it coming. This is important when evaluating others decisions. Anchoring EffectAnchoring is when someone attaches themselves to an initial bit of information. In decision-making, it entails people placing too much emphasis on the single piece of information. This can cause the decision maker to fail to consider other important information. Framing BiasFraming bias is an individuals response to how a situation or decision is presented. This can lead to individuals being deceived or manipulated by third parties. Escalation of CommitmentThis is a tendency of individuals to continue to follow what has proven to be a negative or unproductive course of action. Also known as the sunk cost fallacy or sunk cost bias, because the tendency is motivated by an unwillingness to admit that they are wrong or accept that resources are lost or wasted (they may be able to recover the investment). Immediate GratificationThis is the tendency to make the immediacy of a potential solution to a problem or situation the most important criteria. The result is the failure to consider all available options and settling for a sub-part outcome form a decision that fails to deliver all available value. Selective PerceptionThis 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. Confirmation BiasConfirmation bias is to actively look for information or facts in a situation that supports a particular choice or decision. This approach causes the decision maker to ignore evidence to the contrary. This can also cause a failure to consider contrary information of positions. Availability BiasAvailability bias is a focus on immediate information or situations that come to ones mind. The result is that we tend to believe the information or experience that we recall or demonstrative or explicative of a situation or scenario. 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. Representation BiasThis is the tendency to believe a situation is indicative of a greater tendency. That is, it is related to stereotyping. The decision maker believes that the situation represents all of the characteristics of the population of which it is a part. It causes a failure in the perception of ones ability to predict a given outcome or result. Randomness BiasThis is the tendency to see a pattern in otherwise random data or information. We increasingly seek to harness new sources of information in the decision-making process. Our search for meaning in information leads to an unreasonable reliance on insignificant results. Self-Serving BiasThis is ones tendency to attribute the positive results of a decision or situation to ones 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. Fundamental Attribution ErrorThe tendency for people to over-emphasize personality-based explanations for behaviors observed in others while under-emphasizing the role and power of situational influences on the same behavior. RationalizationThe process of constructing a logical justification for a decision that was originally arrived at through a non-rational decision process. Can be conscious, but is mostly subconscious. Bandwagon EffectThe tendency to do (or believe) things because many other people do (or believe) the same. Status Quo BiasThe tendency for people to like things to stay relatively the same. The preference towards alternatives that maintain or perpetuate the current situation even when better alternatives exist. Illusion of ControlThe tendency for human beings to believe they can control or at least influence outcomes which they clearly cannot. Prudence TrapWhen faced with high-stakes decisions, we tend to adjust our estimates or forecast to be "on the safe side". Recallability TrapGiving undue weight to recent, dramatic events. Sunk Cost BiasTo make choices in a way that justifies past choices, even when the past choices no longer seem valid. Loss AversionThe tendency for people to strongly prefer avoiding losses than acquiring gains. Survivorship BiasFor example, the frequent mistake to forget to include companies that no longer exist in research reports studying various forms of corporate performance. Back to: BUSINESS MANAGEMENT Back to: RESEARCH, ANALYSIS, & DECISION SCIENCE In their book Decision Traps, Russo and Shoemaker reveal the ten most common mistakes in decision-making, many of which are related to cognitive bias:
Related Topics
What do we call the tendency for people to base their judgments on information that they can easily obtain?confirmation bias, the tendency to process information by looking for, or interpreting, information that is consistent with one's existing beliefs.
What is the most common bias in our Judgement?Confirmation Bias
One of the most common cognitive biases is confirmation bias. Confirmation bias is when a person looks for and interprets information (be it news stories, statistical data or the opinions of others) that backs up an assumption or theory they already have.
What is the meaning of confirmation bias?Confirmation bias is the tendency of human beings to actively search for, interpret, and retain information that matches their preconceived notions and beliefs. The confirmation bias concept comes from the field of cognitive psychology and has been adapted to behavioral finance.
What is information bias in decisionInformation bias is the tendency to seek and evaluate information, even if it may not be irrelevant from the perspective of the investor's needs. The traditional view on information related to investments and finance was that investors did not have sufficient information.
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