20 cognitive biases that screw up your decisions

You make thousands of decisions every day — from what to eat for breakfast to which job offer to take.

And you might think you approach all those decisions rationally.

Yet research suggests there are a huge number of cognitive stumbling blocks that can affect our behaviour, preventing us from acting in our own best interests.

Here, we’ve rounded up some of the most commonly cited biases that screw up our decision-making.

Anchoring bias

fahrudinryuken/statigr.am

People are overreliant on the first piece of information they hear.

In a salary negotiation, for instance, whoever makes the first offer establishes a range of reasonable possibilities in each person's mind.

Any counteroffer will naturally be anchored by that opening offer.

Bandwagon effect

http://en.wikipedia.org/wiki/File:Picard_as_Locutus.jpg

The probability of one person adopting a belief increases based on the number of people who hold that belief. This is a powerful form of groupthink -- and it's a reason meetings are often unproductive.

Clustering illusion

http://en.wikipedia.org/wiki/File:Roulette_-_detail.jpg

This is the tendency to see patterns in random events. It is central to various gambling fallacies, like the idea that red is more or less likely to turn up on a roulette table after a string of reds.

Confirmation bias

NOAA

We tend to listen only to the information that confirms our preconceptions -- one of the many reasons it's so hard to have an intelligent conversation about climate change.

Conservatism bias

http://en.wikipedia.org/wiki/File:Flammarion.jpg

Where people believe prior evidence more than new evidence or information that has emerged. People were slow to accept the fact that the Earth was round because they maintained their earlier understanding that the planet was flat.

Ostrich effect

The decision to ignore dangerous or negative information by 'burying' one's head in the sand, like an ostrich. Research suggests that investors check the value of their holdings significantly less often during bad markets.

But there's an upside to acting like a big bird, at least for investors. When you have limited knowledge about your holdings, you're less likely to trade, which generally translates to higher returns in the long run.

Placebo effect

When simply believing that something will have a certain impact on you causes it to have that effect.

This is a basic principle of stock market cycles, as well as a supporting feature of medical treatment in general. People given 'fake' pills often experience the same physiological effects as people given the real thing.

Pro-innovation bias

Daniel Goodman / Business Insider

When a proponent of an innovation tends to overvalue its usefulness and undervalue its limitations. Sound familiar, Silicon Valley?

Recency

The tendency to weigh the latest information more heavily than older data.

As financial planner Carl Richards writes in The New York Times, investors often think the market will always look the way it looks today and therefore make unwise decisions: 'When the market is down, we become convinced that it will never climb out so we cash out our portfolios and stick the money in a mattress.'

Stereotyping

Expecting a group or person to have certain qualities without having real information about the individual.

There may be some value to stereotyping because it allows us to quickly identify strangers as friends or enemies. But people tend to overuse it -- for example, thinking low-income individuals aren't as competent as higher-income people.

Zero-risk bias

Sociologists have found that we love certainty -- even if it's counter productive.

Thus the zero-risk bias.

'Zero-risk bias occurs because individuals worry about risk, and eliminating it entirely means that there is no chance of harm being caused,' says decision science blogger Steve Spaulding. 'What is economically efficient and possibly more relevant, however, is not bringing risk from 1% to 0%, but from 50% to 5%.'

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