Cognitive Bias

Knowledge Center



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

 

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

Cognitive Bias Special Interest Group.



Special Interest Group (36 members)

Forum  

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 (...)
16
 
10 reactions
 
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 reactions
 
Overview of 180+ Cognitive Biases
Check out this amazing visual of 180+ cognitive biases called: "The Cognitive Bias Codex": Wow. (...)
8
 
0 reactions
 
Best Practices

The top-rated discussion 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 (...)
14
 
12 reactions

 
🥈 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 reactions

 
🥉 How to Avoid Biases in Recruitment and Talent Management
As discussed in my post of , most corporate diversity trainings have failed. That is because our minds are ‘stubborn bea (...)
7
 
0 reactions

 
Cognitive Bias Literature
As a Private equity executive, I work with high growth small and medium enterprises (SMEs). I come across Cognitive Bia (...)
4
 
0 reactions

 
What are Heuristics?
Heuristics basically are rules that when followed result in a solution. Suppose there were no roads and you wanted to m (...)
3
 
0 reactions

 
How to Overcome Judgement Noise
As human beings, our judgements can be strongly influenced by irrelevant factors. Even professionals with rich experienc (...)
3
 
0 reactions

 
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
 
0 reactions

 
Perceptions Errors and Cognitive Bias are Similar
Perceptions Errors (misperceptions) are similar terms or concepts as cognitive bias when there are communication problem (...)
3
 
0 reactions

 
How to Fight Cognitive Bias?
How can Hindsight Bias, Rationalization and Confirmaton Bias be tackled? (...)
3
 
0 reactions

 
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 (...)
   
 
 
 

How to Avoid Being Misguided by Experience-based Biases

Analogical Strategic Reasoning, Decision-making, Cognitive Bias, Bandwagon Effect, Confirmation Bias, Anchoring (...)
   
 
 
 

How to Use Intuition in Decision Making Properly?

Intuitive Decision Making, Adductive Reasoning, Bounded Rationality, Cognitive Biases, Managerial Decision-making (...)
   
 
 
 

How to Use Counterintuition to Fight 5 Frequent Decision Making Errors

Strategic Decision Making, Dealing with Complexity, Dealing with Uncertainty, Strategy (...)
   
 
 
 

Do Sad or Happy People Make Better Decisions?

Decision Making, Negotiating (...)
   
 
 
 
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 (...)
 
 
 
 

Overview of Behavioral Economics and Bounded Rationality

Decision Making, Behavioral Economics, Trainings, Workshops (...)
 
 
 
 

Full List of Cognitive Biases Classified into Four Different Areas

Decision Making, Human Behaviour, Management, Leadership, Strategy, etc. (...)
 
 
 
 

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

Heuristics, Biases, Framing (...)
 
 
 
 

Cognitive Bias Types Infographic

Cognitive Bias Types, Cognitive Biases (...)
 
 
 
 

Top 5 Strategy Pitfalls

Strategy Errors, Strategy Traps, Strategy Barriers, Strategic Planning, Strategy Process (...)
 
 
 
 

Avoiding Group Biases: The Pre-Mortem Technique

Group Decision Making, Avoiding Group Biases, Group Think, Tunnel Vision (...)
 
 
 
 

Critical Thinking in Decision Making

Critical Thinking, Testing Assumptions, Avoiding Fallacies, Avoiding Biases, Dealing with Emotions (...)
 
 
 
 

Individual Decision Making and Group Decision Making

Decision Making Process, Groupthink, Decision Making Styles, Vroom-Yetton Method (...)
 
 
 
 

The Power of Persuasion: 3 Main Principles of Influencing Others

Persuasion Techniques, Managing Behavior, Cognitive Bias, Bounded Rationality, Resistance to Change (...)
 
 
 
 

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 Leader

Are you an expert in the Cognitive Bias? Sign up for free

Link to this knowledge center

Copy this code to your web site:

 
 

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


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
© 2020 12manage - The Executive Fast Track. V15.6 - Last updated: 25-11-2020. All names ™ of their owners.