Cognitive Bias

Knowledge Center



Summary, forum, best practices, expert tips and information sources.

68 items • 97.921 visits


Summary

Beware of cognitive biases...Definition Cognitive Bias? Meaning.

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).

A cognitive bias can also be described as a pattern of poor judgment, often triggered by a particular situation.

 

Some cognitive biases can be useful or even necessary, for example because they help to take more effective actions or enable faster decisions. This can be easily understood from an evolutionary context when our predecessors had to confront mammoths and Saber-toothed cats.

But other or sometimes the same biases are also causing problems in modern circumstances.

 

Types of Cognitive Biases

 

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 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.

  • 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.

  • Survivorship Bias. For example, 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.


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:

  1. Plunging In: Beginning to gather information and reach conclusions too early.

  2. Frame Blindness: Creating a mental framework for your decision.

  3. Lack of Frame Control: Failing to define the problem in more than one way.

  4. Overconfidence in Your Judgment: Failing to gather key factual information.

  5. Shortsighted Shortcuts: Relying inappropriately on “rules of thumb”.

  6. Shooting from the Hip: Failing to follow a systematic procedure when making the final decision.

  7. Group Failure: Failing to manage the group decision-making process.

  8. Fooling Yourself About Feedback: Failing to interpret the evidence from past outcomes correctly.

  9. Not Keeping Track: Failing to keep systematic records to track the results of your decisions.

  10. Failure to Audit Your Decision Process: Failing to create an organized approach to understand your own decision-making.

A major consequence of cognitive biases for economics, financial practitioners and markets is the Efficient Market Hypothesis does not hold.


Special Interest Group

Join

Cognitive Bias Special Interest Group.



Special Interest Group (35 members)

Forum

New Topic

Forum about the Cognitive Bias.


🔥 NEW Hindsight Bias
Let us assume that you had an interview for the post of a Research Analyst at a top firm. After a few days, you get an e (...)
17
 
10 comments
Survivorship Bias
We all have often seen articles like: "12 things successful people do differently'" or "20 tips from the world's most su (...)
9
 
5 comments
Overview of 180+ Cognitive Biases
Check out this amazing visual of 180+ cognitive biases called: "The Cognitive Bias Codex":



Wow. (...)
8
 
How to Avoid Biases in Recruitment and Talent Management
As discussed in my post of Workplace Diversity: what Works and what Doesn’t, most corporate diversity trainings have fai (...)
7
 
Cognitive Bias Literature
As a Private equity executive, I work with high growth small and medium enterprises (SMEs). I come across Cognitive Bia (...)
4
 
What are Heuristics?
Heuristics basically are rules that when followed result in a solution.
Suppose there were no roads and you wanted (...)
3
 
How to Overcome Judgement Noise
As human beings, our judgements can be strongly influenced by irrelevant factors. Even professionals with rich experienc (...)
3
 
Outcome Bias in Decision Making
The fact that something worked doesn't mean it was the result of a correct decision, and the fact that something failed (...)
3
 
Perceptions Errors and Cognitive Bias are Similar
Perceptions Errors (misperceptions) are similar terms or concepts as cognitive bias when there are communication problem (...)
3
 
How to Fight Cognitive Bias?
How can Hindsight Bias, Rationalization and Confirmaton Bias be tackled? (...)
3
 

 

Best Practices

The top-rated topics about the Cognitive Bias. Here you will find the most valuable ideas and practical suggestions.


Stories About Human Biases 😃
Once upon a time a grain merchant loaded wheat on his camel's back. He managed to load 50 kilograms of wheat on one side (...)
15
 
12 comments

Your Customers, Employees, Managers and Stakeholders are all Irrational: Behavioral Economics
Most writers treat Cognitive Bias as a negative phenomenon that explains why humans (managers) are incapable of making r (...)
11
 
7 comments

Expert Tips

Advanced insights about the Cognitive Bias. Here you will find professional advices by experts.


Dangers of Categorical Thinking

Decision-making, Strategy, Strategic Thinking
Categorization, taking in voluminous amounts of messy data and then simplifying and structuring it so that you can make (...)

How to Avoid Being Misguided by Experience-based Biases

Analogical Strategic Reasoning, Decision-making, Cognitive Bias, Bandwagon Effect, Confirmation Bias, Anchoring
We often make decisions based on past experiences and judge the future. However, our past experience can sometimes misgu (...)

How to Use Intuition in Decision Making Properly?

Intuitive Decision Making, Adductive Reasoning, Bounded Rationality, Cognitive Biases, Managerial Decision-making
Matzler, Uzelac and Bauer (2014) have written a very interesting article on good Managerial decision making and the cons (...)

How to Use Counterintuition to Fight 5 Frequent Decision Making Errors

Strategic Decision Making, Dealing with Complexity, Dealing with Uncertainty, Strategy
Mauboussin describes five mistakes in decision making that are often made and result in making the wrong decisions. Thes (...)

Do Sad or Happy People Make Better Decisions?

Decision Making, Negotiating
There is a common thought that being in a sad mood will result in a low degree of judgmental biases. For many judgmental (...)
Information Sources

Various sources of information regarding the Cognitive Bias. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.


The Influence of Emotions and Moods on Decision-Making and Entrepreneurship

Decision Making, Emotional Intelligence, Entrepreneurship, Cognitive Bias
This presentation is about emotions in decision-making, thereby paying specific attention to Emotional Intelligence 1. (...)

Overview of Behavioral Economics and Bounded Rationality

Decision Making, Behavioral Economics, Trainings, Workshops
This presentation is abut behavioral economics (an area that focuses on the bounds of rationality of economic agents). I (...)

Full List of Cognitive Biases Classified into Four Different Areas

Decision Making, Human Behaviour, Management, Leadership, Strategy, etc.
Presentation that classifies Cognitive Biases into four different areas, by S. Gupta (2011). It includes the following s (...)

Heuristics as Biases (defects) or Heuristics as Intelligence (beneficial)?

Heuristics, Biases, Framing
Presentation that mainly is about Heuristics as Biases and Heuristics as Intelligence, including the following sections: (...)

Cognitive Bias Types Infographic

Cognitive Bias Types, Cognitive Biases
Experts in the mean time identified more than 180 cognitive biases or "faults within us". This infographic, from "Schoo (...)

Top 5 Strategy Pitfalls

Strategy Errors, Strategy Traps, Strategy Barriers, Strategic Planning, Strategy Process
Strategy is complex and companies are making many mistakes while working on it. Stuart Cross identified 5 frequent strat (...)

Avoiding Group Biases: The Pre-Mortem Technique

Group Decision Making, Avoiding Group Biases, Group Think, Tunnel Vision
Nobel laureate Professor Emeritus Daniel Kahneman explains the Pre-mortum approach by Gary Klein to arrange a special me (...)

Critical Thinking in Decision Making

Critical Thinking, Testing Assumptions, Avoiding Fallacies, Avoiding Biases, Dealing with Emotions
Presentation about critical thinking for decision making, including the following sections: 1. Failure of Imagination (...)

Individual Decision Making and Group Decision Making

Decision Making Process, Groupthink, Decision Making Styles, Vroom-Yetton Method
Presentation about Decision Making by groups and individuals. The presentation includes the following sections: 1. Know (...)

The Power of Persuasion: 3 Main Principles of Influencing Others

Persuasion Techniques, Managing Behavior, Cognitive Bias, Bounded Rationality, Resistance to Change
An extensive presentation about persuasion including many types and examples of persuasion experiements. The following s (...)

Research Links

Automatically jump to further useful sources regarding the Cognitive Bias.


News Videos Presentations Books More

News

Videos

Presentations

Books

More


Compare also: Management Metaphors  |  Metonymy  |  Analogical Strategic Reasoning  |  Behavioral Finance  |  Bounded Rationality  |  Paralysis by Analysis  |  Qualitative Investment Analysis  |  Causal Ambiguity  |  Feedback Loops  |  Groupthink  |  Myers-Briggs Type Indicator  |  Storytelling  |  Garbage Can Model

Special Interest Group

Do you have a keen interest in the Cognitive Bias? Become our SIG Leader

 
 

Return to Management Hub: Communication & Skills  |  Decision-making & Valuation  |  Ethics & Responsibility  |  Finance & Investing  |  Knowledge & Intangibles  |  Strategy & Innovation


More on Management  |  Return to Management Dictionary

 

This ends our Cognitive Bias summary and forum.



About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
© 2021 12manage - The Executive Fast Track. V15.8 - Last updated: 5-12-2021. All names ™ of their owners.