Ever since I read “Thinking, Fast and Slow” by Daniel Kahneman I was amazed by statistics and all cognitive biases that come along with not understanding statistics. I think it’s important to remind yourself from time to time of all the cognitive fallacies that can easily turn your life to the worse. So here is a little reminder — enjoy!
📄 Table of contents
“If you think your IQ is 160 but it’s 150, you’re a disaster. It’s much better to have a 130 IQ and think it’s 120.” — Charlie Munger
Two of the most famous people talking about human misjudgment are Charlie Munger and Warren Buffett. The Vice Chairman and Chairman of Berkshire Hathaway both have talked about their efforts of overcoming cognitive fallacies in order to make decisions that yield great investments and made them some of the richest men in history.
Ground rules for thinking
Remember that even things we are completely unaware of influence our behavior. Conscious and subconscious exposure to an idea “primes” us to think about an associated idea. When we have been talking about food for many hours we are more likely to act “foodrelated”.
A ver general rule for the brain: Things that are easier to compute, more familiar, or easier to read seem more true than things that require hard thought, are novel, or are hard to see. Repeating wrong statements over and over makes them very likely to believe.
The human brains strives for coherence. This is very necessary to survive. We have to “connect the dots” to make sense of the world. But often this leads to conclusions that have no valid base. They merely make sense to our story — “it has to be that way”. They most common mistake is to confuse causation with correlation. Just because similar things happen in similar places does not mean one causes the other.
Common Examples of Biases and Tendencies
Reward and Punishment Tendency
This behavior is deeply rooted into our past. Humans do more of things that they like and do less of things they don’t like. This is very simply, but also very strong. It’s so obvious that many people neglect it.
Halo Effect — Disliking/Liking Tendency
Is the tendency to like or dislike everything about a person — including things you have not observed. Humans let information based on impressions and intuitions cloud there judgment. Not only is the overall decision biased, but also finding further information is anchored to the first information and therefore will be experienced differently.
Humans are heavily rely on the first piece of information they get. Sales negotiations evolve around the first price that was made. Plausible information is even referenced when there is completely no reason to use it. (Tested in questions about scaling objects).
Personally my favorite one. The easier information is to retrieve the more important we qualify it. And emotional experience enhances the effect. People that got robbed estimate the probabilities of robberies significantly higher than non-robbed people. Smokers often denial the threat of cancer with a personal example reference of somebody, who did not get cancer and smoked a lot.
Another massive one. The tendency to search for and find confirming evidence for a belief while overlooking counter examples. An amazing example for that is the discussion about climate change. It is incredible hard to have intelligent conversations about the topic, because each party only looks for evidence supporting their position.
Social Proof / Bandwagon Effect
The chances of adopting a belief increases with the amount of other people holding the belief. It is the engine of groupthink and causes unproductive meetings.
Useful links & credits
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