Cognitive Bias

Description of Cognitive Bias. Explanation.

Definition Cognitive Bias. Description.

Cognitive Bias is a broad term for all distortions in the human mind that are hard to avoid and that lead to a perception, judgment, or reliability that deviates systematically, involuntarily, and rather distinct from the "reality" (after Rüdiger F. Pohl e.o., Cognitive Illusions, page 2-3).

Some of the most important cognitive biases for managers are:

Hindsight Bias. The inclination to see past events as being predictable.
Fundamental attribution error. The 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. See: Attribution Theory.
Rationalization. The 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 Effect. The tendency to do (or believe) things because many other people do (or believe) the same. Compare: Abilene Paradox
Confirmation Bias. The tendency to search for or interpret information in a way that confirms one's preconceptions. Also called Confirming-Evidence Trap.
Status-Quo Bias. The preference towards alternatives that maintain or perpetuate the current situation even when better alternatives exist.
Self-serving Bias. The tendency to claim more responsibility for successes than failures. It may also manifest itself as a tendency for people to evaluate ambiguous information in a way beneficial to their interests.
Illusion of Control. The tendency for human beings to believe they can control or at least influence outcomes which they clearly cannot.
Overconfidence Bias. Overestimating the accuracy of our estimates or forecasts.
Prudence Trap. When faced with high-stakes decisions, we tend to adjust our estimates or forecast to be "on the safe side".
Recallability Trap. Giving undue weight to recent, dramatic events.
Sunk Cost Bias. To make choices in a way that justifies past choices, even when the past choices no longer seem valid.
Loss Aversion. The tendency for people to strongly prefer avoiding losses than acquiring gains.
Anchoring. When considering a decision, the mind gives disproportionate weight to the first information it receives.
Status Quo Bias. The tendency for people to like things to stay relatively the same.
Survivorship Bias. The frequent mistake to forget to include companies that no longer exist in research reports studying various forms of corporate performance.

Managers are well advised to constantly consider the probability that cognitive biases play an unexpected role in their management decisions.

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End of description Cognitive Bias. An explanation.