Cognitive biases

A cognitive bias is a systemic error in logical thinking. It is not an occasional error, but one that we stumble over time and again. Most(if not all) human beings are susceptible to making these errors, and these biases have been present in humans through generations over time. For example, the prospect of losing something has a deeper effect on us than the prospect of gaining something. 


It is more common for us to overestimate our own knowledge than underestimate it. We also do not have the ability to understand probability. Based on what incidents we have seen or know we systematically overestimate the probability of the occurrence of those incidents. For example, we frequently overestimate the causes of death by air accidents while underestimating the probability of death by cancer. 

Some of these biases are necessary for our existence, but many of them are counterproductive and leads to systematic judgmental errors. The inclination to hold onto stocks whose price is plummeting can be very expensive. The prejudice built up by a confirmation bias can lead to very unproductive and toxic situations at work. Awareness and knowledge can mitigate the risk and costs of being victims of these cognitive biases.

Confirmation bias

 A Confirmation bias is the tendency to selectively search for and interpret information in a way that confirms with one's pre-existing beliefs or hypotheses.
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Survivorship bias 
Success is made more visible than failure in our daily lives. As a result we systematically overestimate our chances of success, and are blind to how small our probability of that success actually is. 
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Reciprocity 
If someone does a favour to us, we feel obliged and indebted until we are able to return the favour. Reciprocity is a social rule that says if someone does something positive for us, we return it in kind, and similarly for anything bad done to us. We are likely to go to great lengths to ensure that we reciprocate anything positive done to us. This instinct and desire to return the favour is exploited by shrewd sales people and marketers. It’s a good rule to remember that there's nothing like a free lunch. Do not accept any favours from anyone who you wouldn't want to feel owed to. 

Overconfidence effect 

Our subjective confidence in ourselves is systematically much higher than an objective evaluation would reveal. We tend to be overconfident of our knowledge and capabilities even outside our domains of expertise. It pays to be wary of this cognitive bias especially in business where the costs of mistakes can be very high. 

And many more such as:  Anchoring, Availability bias, Hindsight bias, Loss aversion bias, Gamblers fallacy, Sunk cost fallacy, endowment bias, neglect of probability,  bandwagon effect and more..