Cognitive Psychology: Heuristics and Biases

Judgement & Decision Making

• Heuristics are mental shortcuts, rules of thumb, used in decision-making.
• Algorithms are step-by-step procedures that guarantee a correct solution, but can be time-consuming.
• The human mind often relies heavily on heuristics.
• Heuristics are associated with System 1 thinking.
• System 1 thinking is automatic, fast, and intuitive.
• System 1 thinking is successful at solving problems in practical, natural environments.
• System 1 thinking may involve systematic errors, not necessarily flaws.
• System 1 thinking also involves errors in assessing probabilities.
• Cheater detection module highlights that social context influences reasoning. Specific mechanisms govern social interaction problems, rather than general-purpose mechanisms.
• Survivorship bias is a common cognitive bias where only the survivors of a process are considered, leading to an inaccurate assessment of the overall outcome.

Availability Heuristic

• People judge the probability of an event based on how easily similar instances come to mind (e.g., from memory or media).
• Vivid memories of dramatic events can make those events seem more frequent than they actually are.
• The ease with which instances come to mind can be a surrogate for probability.
• This heuristic can be important for solving practical problems, but also involves subjective biases that can be misinterpreted.
• Estimate of deaths from war and conflict is often notably higher than actual; this involves recall bias.
• Massive opposition to nuclear power can be attributed to the availability heuristic when significant tragedies such as Fukushima are highlighted.

Anchoring Effect

• Anchoring is a cognitive bias where individuals depend too heavily on an initial piece of information offered (the "anchor").
• The anchor can be highly or extremely high, very low, or even extraneous to the issue at hand.
• This bias can significantly impact negotiations and other decision-making processes.
• Individuals use an initial value (the anchor) to adjust their estimates, even if the anchor is arbitrary or irrelevant.
• Asking individuals to spin a wheel of fortune before estimating the percentage of UN members who are African nations is an example of anchoring.

Base Rate Fallacy

• The base rate fallacy is also known as the representativeness heuristic.
• People ignore the base rates when making judgments.
• Base rate is a fundamental part of evaluating probability, but the representativeness heuristic can cause an individual to ignore that factor instead.
• Example: People often judge a person to be a computer science student when there is no obvious reason to believe that, simply based on the stereotype.

Endowment Effect

• The endowment effect is the tendency for people to place a higher value on something they own or possess (e.g. property, goods, or services).
• Once ownership is established an individual will likely favor the object they own, even if established randomly.
• This effect can influence pricing and decision-making, impacting individual behavior and judgments.

Planning Fallacy

• The planning fallacy is the tendency for individuals to underestimate the time needed to complete tasks.
• Overconfidence often leads to unrealistic timelines.
• This bias is not just financial in nature, but can be observed in time, health, or ethical decisions.
• An important antidote is to use premortem analysis, where you consider all possible negative events, not only positive ones.

Loss Aversion

• Individuals tend to be more averse to losses and will likely take greater risks to avoid them rather than make gains.
• This is often attributed to a greater emphasis is placed on preventing losses, even in cases that might be beneficial to the individual financially.
• Losses loom larger than gains.
• Losses hurt more than the pleasure of gains.

Peak-End Rule

• People's judgments of past experiences are based on the peak (most intense moment) and the end.
• People forget the duration of an experience.
• This rule impacts things like evaluating medical treatments or vacations.
• The pain or pleasure from an experience is judged based on its peak and end moments.

Gambler's Fallacy

• Individuals believe that previous outcomes are more significant than they effectively are; this can cause a person to overthink future outcomes.
• If an event occurs more (or less) frequently than expected, it is assumed by some to be more (or less) likely to occur in the future as well; based on prior random events occurring.
• This belief often leads people to make mistakes when betting or evaluating outcomes of events, which often results in poor choices.