What are 2 out of the 5 common cognitive biases?

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Are you making a balanced judgment?

Have you ever made a quick decision confidently, founded on supposedly supporting research, only for it to backfire?

If so, you were likely influenced by cognitive bias.

Cognitive bias – also known as psychological bias – is the tendency to make decisions or to take action in an unknowingly irrational way. For example, you might subconsciously make selective use of data, or you might feel pressured to make a decision by powerful colleagues.

In this article, we'll examine some common types of cognitive bias, with examples, and explain how to avoid them so that you can make better, objective decisions.

What Is Cognitive Bias?

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. Along with Paul Slovic, they published their early findings in their book, "Judgment Under Uncertainty." [1]

Cognitive 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.

The researchers explained that cognitive bias is the tendency to make decisions or take action in an illogical way, caused by our values, memory, socialization, and other personal attributes. There are numerous biases, affecting a wide range of behaviors including decision making, judgment, beliefs, and social interactions.

Note:

Cognitive biases are sometimes confused with logical fallacies, but they are not the same.

A logical fallacy is an argument that sounds convincing but is based on faulty logic, either the result of errors in reasoning or purposely misleading information.

10 Types of Cognitive Bias

Below, we outline 10 cognitive biases that are common in business decision making. We'll then examine how they can affect your judgment with examples, before suggesting how to avoid them.

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 of the relevant information.

Anchoring

This bias is the tendency to jump to conclusions – that is, to base your final judgment on information gained early on in the decision-making process.

Think of this as a "first impression" bias. Once you've heard "the anchor," you're likely to interpret it and make judgments based upon it.

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.

Researchers have found that entrepreneurs are more likely to display overconfidence bias than the general population. [2] They can fail to spot the limits to their knowledge, so they perceive less risk. Some succeed in their ventures, but many do not.

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.

You may also come across the opposite: the Horn Effect. As you may have guessed, this is 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. But in fact, outcomes are highly uncertain. The number of successes that you've had previously has little or no bearing on the future. Read more about our biases toward gain and loss in our article, Kahneman and Tvesky's Prospect Theory.

Fundamental Attribution Error

This is the tendency to blame others when things go wrong, instead of looking objectively at the situation. In particular, 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.

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." [3]

In decision making, this bias can manifest itself as a preference for opinions, people or information that you've already seen or heard before.

Hindsight Bias

Sometimes called the "I knew it all along" effect, hindsight bias is when someone believes that they accurately predicted the outcome of a decision before it was made, even if they didn't.

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 – put simply, when they look back on a decision, they feel that they "knew what would happen all along" – even though they didn't. [4]

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.

Note:

Often, our biases are unconscious so it can be difficult to recognize when they occur in our own decision making. To learn more about how you can identify and tackle unconscious bias, see our article,Unconscious Bias.

The Impact of Cognitive Bias – Examples

Confirmation Bias

Confirmation bias can effect the way that people interpret statistics. [5] People have a tendency to infer information from statistics that support their existing beliefs, even when the data supports an opposing view. That makes confirmation bias a potentially serious problem to overcome when you need to make a statistics-based decision.

For example, your latest social media engagement report shows that you had more "dislikes" on your new videos this month. You infer this to mean that your audience did not like the new presenters, just as you expected, and you decide not to work with them again.

But, if you look at the full report, you’ll see that the number of “likes” also increased, and that you had more views than in previous months. Taking all of the statistics into account suggests that this month’s videos were largely successful.

Anchoring

Anchors often affect decision making when it comes to purchasing a product. For example, if a car salesperson starts negotiations at $10,000, you'll likely feel you're getting a good deal when they eventually lower the cost to $8,500, even if you know its real value is closer to $8,000. In this instance, the first figure you heard determined your valuation of the car, rather than its age and quality.

Overconfidence Bias

Imagine you drop your cell phone, and it stops working properly. You’ve never fixed a cell phone before, but you’re confident that you can do it. How hard can it be?

But, after taking it all apart, you can’t remember where each element fits and you can’t put it back together again. It’s now worse than before, because you were overconfident in your own ability.

Halo Effect

A manager may be unwilling to allocate a team member an important piece of work because of the employee's light-hearted attitude to life. Of course, it's quite possible to pay attention to detail and to be conscientious at the same time as being optimistic and outgoing.

Gambler's Fallacy

A classic example is a coin toss. If you toss a coin and get heads seven times consecutively, you might assume that there's a higher chance that you'll toss tails the eighth time. However, in this example, the odds are always 50/50.

Fundamental Attribution Error

If you're in an automobile crash, and the other driver is at fault, fundamental attribution error means you're more likely to assume that they're a bad driver than you are to consider whether bad weather played a role.

Or, if you have a collision that's your fault, you're more likely to blame an external factor like the brakes or the wet road rather than your reaction time.

Bandwagon Bias

This was a common sight during the coronavirus pandemic, when more and more people would "panic buy" household items and food under the false belief that there would be a stock shortage due to supplier issues. This behavior then created a shortage, which triggered even more people into panic buying.

Mere Exposure Effect

Marketers often take advantage of the mere exposure effect: repeating advertisements with the same messages can make people feel more comfortable and familiar with a product or brand.

Hindsight Bias

Let's say you've spent months preparing to launch and market a new product, and you're confident that it will generate a big profit. But, for whatever reason, it fails, and your company makes a loss.

Now, without realizing, you switch your outlook and believe that it was destined to fail all along.

Dunning-Kruger Effect

A common example is in job interviews or CVs. You demonstrate this bias when you unknowingly glorify or diminish your skills and knowledge in your application. Either way, this can damage your chances of securing the job.

How to Avoid Cognitive Bias

It can be difficult to overcome our biases as they are so engrained. In fact, one study found that people may acknowledge that a bias exists but still use it to make decisions, and then claim to be objective in their assessment. [6]

So, do your best to watch out for biases in your own thinking and decision making: take your time; question your own thoughts, intentions and motivation; consult with others; and guard scrupulously against these common thinking traps. Our articles on Developing Self-Awareness, How to Make Decisions, and Critical Thinking will help with this.

Here are some tips on how you can avoid and overcome specific biases:

How to Avoid Confirmation Bias

Look for ways to challenge what you think you see. Seek out information from a range of sources, and use an approach such as the Six Thinking Hats technique to consider situations from multiple perspectives.

Alternatively, discuss your thoughts with others. Surround yourself with a diverse group of people, and don't be afraid to listen to dissenting views. You can also seek out people and information that challenge your opinions, or assign someone on your team to play "devil's advocate" for major decisions. Constructive controversy will help here.

How to Avoid Anchoring

Anchoring may happen if you feel under pressure to make a quick decision, or if you have a general tendency to act hastily.

So, to avoid it, reflect on your decision-making history, and think about whether you've rushed to judgment in the past.

Then, make time to make decisions slowly, and be ready to ask for longer if you feel under pressure to make a quick decision. (If someone is pressing aggressively for a decision, this can be a sign that the thing they're pushing for is against your best interests.)

Read our article on the Ladder of Inference to find the leaps in logic that you need to avoid. This can help you to make a thorough, well-considered decision.

How to Avoid Overconfidence Bias

Consider the following questions:

• What sources of information do you tend to rely on when you make decisions? Are these fact-based, or do you rely on hunches?
• Who else is involved in gathering information?
• Has information been gathered systematically?

If you suspect that you might be depending on potentially unreliable information, think about what you can do to gather comprehensive, objective data.

How to Avoid the Halo Effect

Step back and consider the person's skill set and experience, rather than their personal attributes. Are they really the best person for the task?

How to Avoid Gambler's Fallacy

One study reported that gambler's fallacy was less likely to happen when decision makers avoided looking at information chronologically. [7]

So, to avoid gambler's fallacy, make sure that you look at trends from a number of angles. Drill deep into data, using tools such as Situational Appreciation.

If you notice patterns in behavior or product success – for example, if several projects fail unexpectedly – look for trends in your environment, such as changed customer preferences or wider economic circumstances. Tools such as PEST Analysis can be useful here.

How to Avoid Fundamental Attribution Error

It's essential to look at situations, and the people involved in them, non-judgmentally. Use empathy and (if appropriate) cultural intelligence, to understand why people behave in the ways that they do.

Also, build emotional intelligence, so that you can reflect accurately on your own moods and reactions.

How to Avoid Bandwagon Bias

To avoid bandwagon bias, make sure you have a panel of decision-makers who are able and confident to bring fresh perspectives, and consider each idea objectively. Try methods like the Delphi Method which allows team members to contribute individually, with no knowledge of a group view.

But, remember that the most popular idea could be the best solution for your business, so don't write it off as a bias straight away. Instead, carry out an impact analysis to examine whether it's the right decision.

How to Overcome the Mere Exposure Effect

To avoid the mere exposure effect, think carefully about data, individuals or ideas that you're already familiar with. If you've encountered something before, even in passing, it's important to analyze why you might want to support it. Is it truly in line with what you think is best, or are you positive about it because it feels familiar and safe?

How to Overcome Hindsight Bias

One of the best ways to overcome hindsight bias is to gain expertise. The more knowledge you have about the task under consideration, the smaller the resulting hindsight bias will be. [8]

To avoid it, do what you can to increase your knowledge about the issue at hand, and about the industry as a whole, so that you can understand the task as part of a wider context. Encourage your stakeholders to research the topic for discussion thoroughly, and take steps to build their expertise too.

How to Avoid the Dunning-Kruger Effect

Listen to, and ask for, feedback from your manager and co-workers, too. This will help to highlight your strengths and weaknesses that you may not be aware of.

You can also take skills tests to measure your abilities objectively. Mind Tools has a wide range of quizzes to get you started.

Key Points

Cognitive or psychological bias is the tendency to make decisions or take action in an unknowingly irrational way. It can harm not only your decision making, but also your judgment, values, and social interactions.

To overcome it, look for ways to introduce objectivity into your decision making, and allow more time for it.

Use tools that help you to assess background information systematically, surround yourself with people who will challenge your opinions, and listen carefully and empathetically to their views – even when they tell you something you don't want to hear.

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