The Decision Strategist

Since the information on the different kinds of decision making errors is so relevant, I’ve copied the original post to this page. Updates to the list of decision making errors will be made here.

Confirmation Bias

We focus on things that we see more often or are bigger events, even if they are less prevalent (e.g. airplanes are much less dangerous than cars, crime has been decreasing though we more of it on TV). We also focus more on information that supports our current opinion or view. Often these views won’t even be known to us, as in the case of associative memory. It has implications for information warfare, suggesting that one should release early and release often.

Happiness Is Relative

We are competitive animals, and we care very much about what people around us have or are getting, even if we don’t want what they got. Competing with the Joneses at it’s finest, but certainly not helpful for building strong relationships or for reducing unnecessary spending.

Endowment Effect

Not only do we want things we don’t need if other people have them, we have a lot of trouble getting rid of stuff we don’t need. We value things we own more highly than things we don’t. Perhaps this explains all those people on craigslist trying to sell furniture at outrageously expensive prices?

Hindsight Bias

We give events that have already occurred a higher probability than they actually had. An unprobable event can happen and we will give it greater weight of happening again, even if it is a rare event.

Recency Effect

While the confirmation bias leads us to put more value in information we encounter more often, the recency effect is that we place more value on information and events that have happened more recently. As the information or event fades into the past, we discount it’s value.

Sensory Overide

Senses affect what we think about something. We know the power of brand images and how they can affect our tastes, but it goes beyond that in that our minds are associative, and one thing sparks another. Advertisers use this to spark a positive association, though there are ways we can fight back.

Conformity

Most of us are too scared to go against the crowd. We aren’t quite lemmings, but we hesitate before doing or saying anything that would be viewed as different. Yes, this also applies to those of us who are “counter culture”. Whatever group we identify ourselves with, we become as much as possible like that group.

Sunk Costs

For some reason we feel that if we’ve invested a lot of time, effort or money in something, we should keep going even if it is obvious that it is going to fail. This is great for con artists, because once they get you invested they can get more and more from you because you don’t want to lose the money you already gave them. It happens in lots of cases and is hard to walk away from.

Attribution Errors

We prescribe will where it doesn’t exist. If someone snubs you at a party, you think they did it on purpose because they didn’t like you or they are an arrogant jerk. It is usually more likely that the person didn’t see you or was thinking about something else. We even do this with animals and inanimate objects like computers. I know that when I stub my toe, drop the mail, spill my water, and lose my notes, I am pretty sure that the inanimate objects of the world are ganging up on me to cause me pain.

Attribution errors also play out in conflicts. We judge people according to the content of their speech even if they were assigned that content randomly. We tend to ignore constraints on people’s behavior when we are assessing motive and we assume that other people will take into account those same constraints when looking at our motives.

Referencing

We reference recent events in evaluating a current event. If you read about an airplane crash in which 200 people died, and then hear about 2 people dying in a car wreck, you are much less moved than if you haven’t heard about any deaths. This happens in poker (if you win $100 and someone next to you wins $1000, you are less happy than if they won $10) and just about everything else.

If-Then Fallacy

The if-then fallacy is a simple error that we make very often. The basic problem is that if we agree that the if statement is true, our tendency is to agree with the then statement regardless of whether or not the two statements are correlated. Somehow we forget to consider whether the relationship between the if statement and the then statement is justified. Many people will use this, even unconsciously, when arguing a case, especially if there are personally invested, such as real estate agents in a down market.

Anticipation Bias

The anticipation of a reward is stronger than the reward itself. Desire to purchase a new toy, anticipation of a wage or promotion, expectations on a stock, all of these things are examples of the anticipation bias. We want the new toy badly, but when we get it it doesn’t really make us happy, and we move on to the next toy. We have huge expectations for a company, and so their stock soars, but when they actually succeed their stock actually goes down.

Status Quo Preference

In general, people prefer things they are familiar with. We’d rather eat at the same restaurant we’ve been to hundreds of times than try a new one. If we grew up seeing lots of pink, we probably prefer pinker colors to blue ones.

Thinking in Metaphors

Thinking in metaphors isn’t bad in and of itself, the problem comes when our metaphor doesn’t match reality. It can lead to fights, as when one person is thinking of a problem in terms of a classroom and another is thinking of it in terms of football (from here). There’s no real way to avoid this, but shifting metaphors can be a powerful technique for dispute resolution. Thinking in metaphors can also be useful as a source of motivation and a method of planning for the future.

Excessive Optimism

We overrate our own skills. 80 per cent of us think we are better than average drivers. 90 per cent of managers think they are better than average workers. This same overconfidence in our own abilities is reversed when considering others. We tend to view other people as less useful or simply less skilled, and hence devalue their contribution to projects.

The Illusion of Control

Control over the outcome of a situation is often determined by a large number of various factors, but we typically assign our own role in an outcome a much higher value. We think we can affect the outcome of situations that may be completely random. This leads to blaming ourselves (or others) when things fail and congratulating ourselves when something works out, even if we were not responsible in any way.

Offer Devaluation

When negotiating, whether with a spouse, an associate or a competitor, we value what they offer less highly than if we were offered it for no reason. Typically an offer during negotiation is seen as a way of unloading a less valuable asset at best and a nefarious scheme at worst. The reverse is also true, in that if we make a concession we value that concession more highly than we normally would. These two factors combine to make negotiating very difficult, and explain why a mediator is so valuable.

Loss Aversion

We usually talk about being risk averse, but when it comes to loss, we can actually be risk seeking. When facing a choice between a sure loss and a 90% chance of a greater loss, we typically choose the risky option, even though it is a statistically worse choice. This boils down to a fundamentally incorrect valuation of statistics, overvaluing the possibility of small chances.

Automatic Associations and Stereotyping

Our brains make unconscious and automatic associations between things in our environment, even if they aren’t true. This leads to both conscious and unconscious stereotyping. When making decisions this results in devaluing an option because of an association that isn’t supported by reality. This is a major source of racism and sexism even in people who actively resist being racist or sexist, but it also applies to any other correlation that is embedded in culture with no basis in reality. Fortunately, we can improve our decision making by pursuing new experiences. With experience that shows automatic associations to be false, the mind will correct the error. We can also use associations in a positive way to help us break a bad habit.

Limited Processing Power

We are only capable of holding between three and seven things in our minds at the same time. For decisions with more inputs than that, we simply can’t consider them, and have to start determining which input is more important for the decision at hand. This is actually a double-edged sword because we are really pretty good at making good decisions based on only a small amount of information, but our ability to make good decisions actually declines as the amount of information increases. Unfortunately, our confidence in our ability increases with more information.

Conjunction Fallacy

We generally consider the probability that two related events happen to be higher than the probability of just one of the events ( P(A|B) > P(A) ). It is of course impossible that this is the case. In decision making this same effect occurs. As we add more detail to an option, that option sounds more attractive. Similarly, as we take in more information about a decision, our confidence in our decision grows.

False Dichotomy

It is tempting, and much more comfortable, for us to think in terms of either-or’s, in terms of dichotomies. But in truth the world is much more complicated than that. It is rare that we encounter a decision or political, moral, philosophical, environmental or other positions that has only two options that never touch each other.

False dichotomies are often pointed to as a psychological source of many problems because they encourage the segregation of social groups. They also allow us to get much more emotional than we are able to when we are considering multiple possibilities or points of view. Decision making under a false dichotomy often results in a choice between unpleasant options without considering other possibilities.

(updates made as discussion warrants)

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