“The Hidden Ways Our Brain Tricks Us: A Look at Biases and Heuristics”
Humans are full of flaws and biases. We consider ourselves rational animals, though we act irrationally most of the time. Heuristics and cognitive biases are so deeply ingrained in our brains that we make irrational decisions all the time without even realising them.
Economists and Psychologists join hands to study the subject in great depth and length, which is considered ‘Behavioural Economics’. Pioneer Psychologist Daniel Kahneman’s chef d’oeuvre ‘Thinking Fast and Slow’ talks about these biases and heuristics in great depth. (I personally suggest reading that book).
Here are some of the human biases and heuristics mentioned by Daniel Kahneman.
1. Framing Effect
It’s a cognitive bias in which we make our perception about something depending on how it is framed. A framing difference can alter our psychology very likely in a negative or positive way. This technique is used in marketing and advertising and plays a dominant role in deciding which product to buy or not.
Let’s suppose you go to the supermarket to buy chips. There are two brands available. Onthe first brand, it’s written on the package that it is 80% fat-free while on the other brand package, it’s written it has 20% fat. Most cases, we will go for the former brand despite both of them providing the same thing. That’s the framing effect in simple terms.
2. Priming Effect
Your thoughts and behaviour may be influenced by stimuli to which you pay no attention at all, and even by stimuli of which you are completely unaware.
Social media is the biggest medium for the priming effect. You are being influenced by things that you don’t pay any heed to while doing doomscrolling.
3. Anchoring Effect
It’s an important cognitive bias that we may face often in our lives. An Individual decision and satisfaction is influenced by a particular reference point or anchor. While purchasing an item, if the shopper puts a price first, it creates an anchoring point around which bargaining happens. Getting the item at the price lower than the reference point is a win. Even though the actual price is much less than the anchor.
Suppose you go to a shop to purchase a T-Shirt. If the shopkeeper tells you the price of that T-Shirt is Rs 500, then it will become an anchoring point in your negotiations. You try to keep it down to Rs 500 and if that happens, it’s a win for you. It doesn’t matter if you can get that T-shirt at Rs 250 from another place. Cognitive bias will satiate your ego.
4. Loss Aversion
Loss is much harder for us to bear than gain. It’s a truth. We fear from loss much more than gain.
If you have to choose between the one situation in two case scenarios, then which one would you take?
A person continues to work at a job they dislike because they are afraid of losing their salary and benefits, even though finding a new job that they enjoy more could lead to greater happiness and fulfillment.
5. Focusing Illusion
People have a tendency to focus on one aspect of their lives while ignoring other aspects.
Muller-Lyer Illusion is a great example here which contradicts our belief system.
6. Sunk-Cost Fallacy
It’s a human tendency to not leave the wrong or fail venture just because you have invested so much in it, especially when leaving is much more beneficial than keeping. She can bear the terrible experience rather than leave it once and for all.
If you purchase a costly dish in a restaurant, and it’s bad in taste. You will still eat it or at least try to eat until the unbearable level. Here, the sunk-cost fallacy will force you to bear the unpleasant experience than throw out the food.
7. Endowment Effect
It’s an emotional bias that makes us value our objects higher than actual market value as we get associated with them.
Here works loss-aversion that makes us terrible to realise a loss more brutally than a gain.
An individual refuses to sell a stock that has decreased in value, hoping that it will eventually increase again, even though selling it and investing the money elsewhere may be a more financially sound decision.
8. Immediacy bias
We give much more weightage to immediate events than the past ones as they remain prominent in our memories. That’s called Immediacy bias, where we sometimes neglect old events while taking decisions.
A person spends all of their money on a lavish vacation, even though they can’t afford it and it will leave them with no savings or financial cushion. They are focused on the immediate pleasure of the vacation and not considering the long-term financial consequences.
9. Duration Neglect — We usually neglect the duration of something and make our opinion or decision on the basis of the end. Hence, the length of the experience has little effect on the memory of the event.
you take on a demanding and stressful job because it pays well, even though it will require long hours and will leave them with little time for leisure or relaxation. They are more focused on the magnitude of the financial reward than the duration of the time and effort they will have to invest.
Thanks for Reading!
(Source — Daniel Kahneman’s Thinking Fast and Slow)
