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Learn important automatic thinking patterns that often bias people's thinking, and some simple correction strategies to help you enhance your decision making.
What is the anchoring bias?
You're over-influenced by an initial number, even when the number is random and irrelevant.
Suppose that when selling your old car, you receive an offer from a car salesman and think that the price is reasonable.
Why should you watch out for the anchoring bias in your thinking?
You might "anchor" on the first price and avoid asking other car dealers that offer higher prices. Instead of a great deal, the anchoring bias would make you settle for a mediocre deal.
What is a mental habit that helps you avoid the anchoring bias?
Disregard the initial value value and suggest a new one based on evidence.
Suppose that a real estate agent suggests a price of $400,000 on a house you're thinking of buying.
How can you reduce the impact of the anchoring effect?
You can explain why a lower price should be the starting point, for example by saying "I checked housing prices in this area, and it seems that this type of house typically sells for $300,000."
What is the halo effect?
A positive trait about a thing or a person makes you assume that other unrelated traits are also positive.
Why should you watch out for the halo effect in your thinking?
The halo effect can make you think that things or people are better than they are, but everything has flaws.
What is the base rate fallacy?
You judge how likely something is based on its unique details, without considering how often it generally occurs (i.e., you don't take "base rates" into account).
Suppose that one of your colleagues seems perfect: smart, charismatic and hard working.
How can you reduce the impact of the halo effect?
You can evaluate the colleague on other traits, such as kindness, honesty and listening skills.
You find an abnormal rash on your body and read online that it's a symptom of a rare and dangerous disease.
How does the base rate fallacy influence your thinking?
You might become anxious thinking that you have a dangerous disease. But you can relax by considering how rare the disease is.
Still, go to the doctor to check it out, just in case!
Suppose that there's a famous politician who you think is a captivating speaker.
What bias should you watch out for?
The halo effect.
The politician's speaking skills might make you think that the politician is a great decision maker. Instead, assess his or her decision making skills by looking at past decisions.
What is a mental habit that helps you avoid the halo effect?
Try to evaluate something on many traits, rather than using one or two traits to infer the rest.
What is the availability heuristic?
You think that things that are easy to recall (i.e., recent or vivid events) occur more frequently than in reality.
How does the availability heuristic influence you when playing the lottery?
As lottery organisers only promote the winners, it's easy to recall winners when thinking of the lotto. So you may overestimate the chance of winning.
Suppose that a close family member has to board an airplane, and you've just heard the shocking news of a plane crash.
Why should you watch out for the availability heuristic in your thinking?
You may overestimate the chance of a plane crash and worry about your family member. But flight statistics show that commercial flying is incredibly safe.
Suppose that shocking news headlines about a terror attack have made you worried about becoming a terror victim.
What bias should you watch out for?
The availability heuristic.
You might avoid crowded places, as shocking headlines of terror attacks easily come to mind. But it's useful to check terrorism statistics in your area to stop being worried.
Suppose that you notice that you're full when you're halfway through an expensive meal at a restaurant.
How does the sunk cost fallacy influence your thinking?
You might continue eating even if it's unpleasant. If you admit that you cannot finish the meal, you might feel like you wasted money. Just get a doggy bag!
What is the sunk cost fallacy?
You stick with a project that isn't worth continuing because of the resources (e.g., time, money or effort) you've already invested in it.
Suppose you want to talk to a stranger but decide not to because of a memory of a bad conversation.
How can you reduce the impact of the availability heuristic?
You can recall your last conversations with strangers (which typically went well or neutral), instead of relying on the vivid example of a bad conversation.
Suppose that you're thinking about trying to save a failing romantic relationship that you've been involved in for years.
Which fallacy should you watch out for?
The sunk cost fallacy.
You may stay in a bad relationship because of the time and energy you invested in it, while you should only consider the prospects of the relationship.
After work on a railway project had begun, some estimates suggested that a bus system would be better. Still, the railway company commented that to stop would be "a huge waste of public funds".
Which bias should the railway company look out for?
The sunk cost fallacy.
The railway company continued a project even if it wasn't worth the investment, to avoid "wasted" resources.
Suppose that you walk around in a foreign city, and you see someone who looks like your friend from home. You assume it's your friend.
Which two questions can you ask yourself to reduce the impact of the base rate fallacy?
How likely is it that my friend is travelling in this city? (i.e., the base rate.)
Given how much this person looks like my friend, how much should I adjust my prior belief?
How does the halo effect influence you while debating whether nuclear power is good or bad?
If you think that nuclear power is cheap, you may think that it's also safe and green. But if you think it's expensive, then you may think it's also dangerous and dirty.
What is the planning fallacy?
You underestimate the time, cost and effort to complete large projects, even when you have experience in similar projects.
Why should you watch out for the planning fallacy in your thinking?
It's hard to meet deadlines, especially for long, complex projects (e.g., creating a video game). So plan enough time to correct for the planning fallacy.
What is a mental habit that helps you avoid the planning fallacy?
Check how much time your previous similar projects took. Ideally, calculate the median duration and cost of the last five similar projects.
Or split the project into parts and sum up the estimates of the time and money needed for each part. Finally, double your estimate!
What is the impact bias?
You overestimate how long and intense your emotional reactions will be.
Why should you watch out for the impact bias in your thinking?
By overestimating the impact of positive life changes, you might work hard for something not worth it. And by overestimating negative impacts, you might avoid facing harsh but necessary truths.
Why does the impact bias occur?
Your mental simulations of the future are overly influenced by the detail that you're now focused on.
What is a mental habit that helps you avoid the availability heuristic?
List the last few cases of the thing in question and look up statistics about it instead of relying on the example that comes to mind first.
What is a mental habit that helps you avoid the base rate fallacy?
First, ask yourself: "What is the base rate of this event before seeing the evidence?" Then adjust your belief based on the evidence.
What is a mental habit that helps you avoid the impact bias?
When predicting how an event will make you feel, list 3-5 things that are unrelated to the event but will also affect your feelings.
Suppose that you're predicting how sad you'd be if you got fired.
To counteract the impact bias, list three things that would still give you joy after getting fired.
• Hanging out with friends
• Spending time on hobbies
• Doing physical exercise
What is a mental habit that helps you avoid the sunk cost fallacy?
Ignore the time, money and effort previously invested. Instead, ask yourself: "If I could choose to be involved in this project today at its current state, would I choose to do so given its prospects?"
How does the planning fallacy influence you when preparing for an exam?
You might underestimate how much time and work studying will require, so you might cram on the night before the exam.
Why does the sunk cost fallacy occur?
You don't like waste, but you don't consider investments in a project as waste until you stop working on the project.
Suppose that your new boss throws out the first offer during a salary negotiation for a new job.
How does the sunk cost fallacy influence your thinking?
You might make a counteroffer near the initial price. But maybe your new boss lowballed you, and if you had made the first offer, you might have gotten a higher salary.
Suppose that you said something inappropriate during a job interview that otherwise went OK. You now think there's no chance of getting the job.
Why should you watch out for the base rate fallacy in your thinking?
By considering base rates (i.e., you're one of four interviewees), you might realise that you still have a chance of getting the job and feel less regret about your inappropriate comment.
Suppose that you're about to have a pay raise negotiation with your boss and that they start by suggesting a number.
What bias should you look out for?
The anchoring bias.
The first number can anchor the negotiation, so later changes are small corrections from the first number.
Suppose that you start a business that's clearly a failure.
Why should you watch out for the sunk cost fallacy in your thinking?
You might continue working on the failing business because you've spent so much time and energy on it that you don't want to think it's been a waste. But continuing to work on it causes even more waste.
Suppose that you're on a commercial flight and you think that it will crash because of a strange sound in the plane.
Which fallacy should you look out for?
The base rate fallacy.
You're considering only the strange noise without considering commercial flights' rock-bottom crash rates.
Why does the planning fallacy occur?
You might treat each project as unique and neglect your experience from past projects. Also, complex projects have many steps with a low chance of going wrong, so we imagine it all going smoothly.
Why does the halo effect occur?
You quickly form judgments based on a few traits, thus saving effort compared to evaluating all traits independently.
How does the impact bias influence you after getting a promotion at work?
You might feel like the promotion high will last forever, but months later, the new role isn't exciting anymore.
Suppose that you were one of four job candidates and said something inappropriate during the interview, so you think there's no chance of getting the job.
How can you reduce the impact of the base rate fallacy?
Suppose interviewees were equally experienced. You should expect to have a 25% chance (1/4) of getting the job before the interview.
Then ask yourself: how much should I adjust this likelihood now that I said something inappropriate at the interview?
Suppose that your boss assigns you a new project and asks you how much time it will take you to complete it.
What fallacy should you watch out for?
The planning fallacy.
The project will likely take longer to complete than you think, even if you have relevant experience. So you may end up looking bad, unless you correct for the planning fallacy and plan more time!
Suppose that you feel stuck in an awful relationship, and you're imagining how a breakup would feel.
Which bias should you look out for?
The impact bias.
You might stay in that miserable relationship for years because you overestimate how painful the breakup would be and how long it will take you to recover.
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