Anchoring Bias

This is clinging to a fact or figure that should have no bearing on your decision.  Often, we use an initial value or first piece of informationa as a “starting point” in decision making.  Even if the initial value was…

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Credulity Bias

“The Moon is made of green cheese.” While we might like to believe that we are all perfectly rational, reality is far different.  Unfortunately, we tend to be susceptible to the manipulative messages that the financial industry and the popular…

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Hindsight Bias

Also known as the “I knew it all along” effect.  Hindsight bias refers to our tendency to take facts now known and  interpret them in a way that explains past events.  In retrospect everything seems clear and inevitable. This is a…

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Overconfidence

A close relative to the previously mentioned Confirmation Bias, Overconfidence is the tendency to overestimate our own abilities (i.e., we aren’t as smart as we think we are).  We tend to think that we are much better forecasters and estimators than we…

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Confirmation Bias

We let confirmation bias take control of our mind by only seeking out information from sources that agree with our pre-existing beliefs.  Conversely, we tend to ignore and dismiss information (= disconfirming evidence) which tend to disprove our initial impressions. It’s the tendency to interpret the glass…

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Loss Aversion

Social scientists have proven that—emotionally—a loss “weighs” at least twice that of a similar gain.  That might be great for aspiring body-builders, but not so great for us regular Joes. It’s the actual gaining or losing and your feelings about it that…

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STATUS QUO BIAS

Irrationally wanting things to stay the same, also called inertia.  We do this in part because we want to avoid costs, even when they’re offset by a larger gain, a process psychologists call “Loss aversion”. You hold onto a mutual fund…

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