10 Cognitive Biases

Ways that we think that hurt our ability to see the truth

Cognitive biases refer to the thinking part of the brain. The human brain evolved with a “Neo Cortex” that gave us the ability think, plan, communicate and set the direction to our behavior. This skill allowed humans to take over the world like no other species before us.

Just as an athlete studies how the body works to improve their skills for movement, a creative building human studies how the brain works to improve their planning and predicting skills.

Below are 10 of the most common cognitive biases. Reading these will give you ideas on how to improve your planning, reasoning, and decision making skills.

Incentive Reward Bias

As one of histories greatest investors, Charlie Munger, famously said, “Show me the incentive, and I will show you the result.” There are countless examples of dramatic changes when a sales person is paid commission on sales rather than paid for work by number of hours. Can you think of any incentives you can create to set others off in a direction that is good for both of you? Incentives don’t all have to be set with money, and often with friends and family, it is better to reward with reciprocal good behavior than with money.

Reciprocation Tendency

Humans feel an obligation to give back when something is given to them. Notice how you feel after you receive a free sample while shopping. In addition to trying the sample, you feel an obligation to reciprocate by considering to buy the sampled item. We naturally want to give back to the person who gave us the sample. You may try improving relationships by being the first to give.

Optimism Tendency

Optimism is a mindset that tells you everything will go well. Companies regularly promote overly positive visions of their new ideas as well as a plan to complete their goals quickly. On lookers are often quick to believe the promises will be fulfilled as promised and on time. Optimism is a great motivator, but in order to make a better plan, remember that it won’t be easy and you will run into road blocks. If you want to complete projects on time, expect the unexpected and set time aside to deal with the unexpected even before unpredictable problems inevitably pop up.

Attention to Negativity Bias

The human brain naturally focuses more attention on and remembers negative news more than positive news. We evolved from mammals, living in the woods who needed to pay close attention to the many threats that could kill them. A predator lurking is more urgent than a nice mango tree. But in today’s safe human environment, most problems are not actually dangerous, yet we apply intense stress to things like someone saying mean things about us or stories of war 1000’s of miles away. Meanwhile, good news, such as many long term improvements in living conditions are rarely in the news. The news is often a recap of the worst thing that happened in the world in the last 24 hours. Can you spend more time looking for and appreciating positive news that is more relevant to your life?

Loss Avoidance Preference

When I started my e-commerce business in the 90s, I remember that risk from credit card fraud from non-US customers was ~2% while credit card risk from US customers was under 1%. Extra risk on orders from outside the US made many of my competitors refuse all non-US orders. This emotional decision to avoid loss resulted in these businesses losing an additional 10% in sales in order to avoid an extra 1% cost.  Are you running away from a fear of losing that you would be better served to face and work on?

Mimetic Gravity

Humans have an inescapable drive to mimic, copy, and become like those we are around. Our brain’s desire to mimic others is more powerful than most people realize. I remember when I became a student at the University of Michigan, I thought it was cool that I had a Boston accent. People would ask me about it, and we would laugh about it. Enjoying the attention, I didn’t want the accent to go away, but despite my resistance, after two years my accent disappeared (mostly:). 

There is a saying; "You will become the average of the five people you spend the most time with." Do you want to be like those who surround you? If not, make some changes.

Comparison Tendency

The human brain naturally measures things by comparing them to other things. If you get into a warm shower when you are cold, the warm water will feel hot. If you feel hot when you get into that same temperature warm shower, the warm water will feel cooler.

Many of the greatest entrepreneurs, including Elon Musk, talk about the importance of thinking from “first principles”. This means that you should think about what is best without starting with a comparison of what already exists. When Elon Musk designed his spaceships and electric cars, he didn’t look to just improve on existing products. Rather than compare and improve, he looked for what is physically possible according to the natural laws of how the universe works. (physics).

If you are looking for a change in an area of your life, can you look at designing your goal from first principles? I bet that makes your idea more unique and exciting!

Emotional Bad Decision Making Tendency

Our emotional brain is very important, but when it comes to thinking and planning, the emotional brain performs poorly. When humans are filled with emotions we tend to make bad decisions. Whether we are stressed or angry or even very excited, we may say or do things that make the situation worse in the short and long term. Yelling is less productive than speaking calmly. Making quick decisions on the spur of the moment are usually less quality decision then ones that we spend time to think about and plan. 

As you read this with your sober thinking brain, you may agree, but when you become emotional and your emotional brain takes over, you may not remember this logic and won’t be ready to stop yourself from making bad decisions. Can you set up tricks to get your neo-cortex “smart brain” back in charge when the emotional brain takes over? Can you set up strategies to prevent yourself from making bad choices when your emotional brain takes over?

Consistency bias

The human brain likes consistency and so we often defend our oldest ideas and resist change. Famed investor Charlie Munger, has a quote that says, “a good year is one in which I drop one of my best ideas.” Do you have an idea that you used to think was the best, but now you know it is not? Maybe it was never really was the best idea or maybe it was the best idea a long time ago, but conditions have changed and that idea is no longer the best. Although its not easy to let go, it is very valuable to create space for a new best idea that is hopefully truly great.

One of the reasons that large successful companies often get disrupted by new companies is that it is hard for all of the humans in the older company to let go of old ideas that had once made it great.  I remember in 2015 bitcoin at $300 was my best idea, but in 2020 I realized that Ethereum was an even better idea. It was emotionally hard to sell my best investment, bitcoin, that made me a lot of money over the previous 5 years. Selling my bitcoin gave me the money to invest in a new yet unproven best idea, Ethereum.  Since 2020, Ethereum has outperformed Bitcoin by 300%!

Confirmation bias is a related human brain weakness where we look for confirmation to reaffirm existing ideas more than we look to challenge and replace our existing ideas. Confirmation and consistency biases work together to make it hard for us to adjust to change. Are there area’s in your life where you can benefit by letting go of old opinions that are now holding you back?  

Time Frame Ignorance

When planning for the future, we often don’t consider how long it will take to complete our plan. Even when we do consider timing of our plan, we often don’t put in enough effort to make an accurate time prediction. Many debates about market and economic predictions are actually arguments over timeframe. One person can predict a stock is going to go down in price because they are thinking it will go down over the next six months. Meanwhile someone else can argue that this same stock will go up in price because they’re thinking the price will be higher within five years. Those people seem to be expecting opposite results, but if you look at the time frame, they can actually both be correct if the price goes down for a few months and then goes up later.

Do you have goals for yourself for things you want to achieve? If not, you should! If you do, have you added how long it will take to achieve your desired results? If a goal will take longer than a few months to achieve, try to come up with a half way point goal, and track your progress along the timeline. Try to become better at not only achieving your goals, but at predicting how long it takes to get things done.

More to come . . . ?

There actually are many more cognitive biases, but I decided to just put out these ten to see how interested you are. If you read this far and want to see more, comment below and share this article with others. If there is interest, I can write out more!