7 Cognitive Biases And How To Cope with Them
Key learnings from a class in behavioral finance and how to take advantage of them in everyday decision making
According to neuropsychologists we make about 20,000 decisions every day — in other words about 14 every minute. This unimaginably high number shows how often we need to decide ourselves for or against something. Since making good (conscious and unconscious) decisions are the foundation for success we definitely should have a look on how to improve our decision making. Therefore, it is crucial to understand the fundamental dynamics of our brain and especially its irrationalities. This article provides you an application-oriented knowledge about some of the most common cognitive biases to encourage you to reflect and improve the way you deal with making decisions.
1. Risk aversion and loss aversion bias: We are not rational
Example: If you win $300 in the lottery you would gain some happiness but if you lose $300 in the casino you would feel much more unhappy. Therefore, you would do more to prevent the loss than to receive the gain.
While we mostly are risk averse, simply meaning we prefer a safe gain before a gamble with the expected gain equal to the safe gain, we do…
