Cognitive Bias
China North Korea
Asked people if they thought North Korea was like Red China. They said yes. He asked them if Red China was like North Korea—and they said no.
Salary
Psychologists have shown that most people prefer to make $70,000 when others around them are making $60,000 than to make $80,000 when others around them are making $90,000.
Insurance
Go to the airport and ask travelers en route to some remote destination how much they would pay for an insurance policy paying, say, a million tugrits (the currency of Mongolia) if they died during the trip (for any reason).Then ask another collection of travelers how much they would pay for insurance that pays the same in the event of death from a terrorist act (and only a terrorist act). Guess which one would command a higher price? Odds are that people would rather pay for the second policy (although the former includes death from terrorism).
Lateral thinking
The definition was “a method for solving problems by making unusual or unexpected connections between ideas.
Financial biases
These are imprecise mental shortcuts we make with numbers, such as hyperbolic discounting – the mistake of preferring a smaller, sooner payoff instead of a larger, later reward. Another classic financial cognitive bias example is the “Ostrich effect”, which is where one sticks their head in the sand, pretending that negative financial information simply doesn’t exist.
Social biases
Social biases can have a big impact on teams and company culture. For example, teams can bandwagon (when people do something because other people are doing it), and individual team members can engage in blind spot bias (viewing oneself as less biased than others). These both can lead to worse decision-making.
Short Term-isms
One way to ensure a business that doesn’t last? Engage in short term-isms – fallacies that gear your business towards decisions that can be rationalized now, but that don’t add any long-term value. Status quo bias and anchoring are two ways this can happen.
Failure to Estimate
So much about business relies on making projections about the future, and the biases in this category make it difficult to make accurate estimates. Cognitive bias examples here include the availability heuristic (just because information is available, means it must be true), and the gambler’s fallacy (future probabilities are altered by past events).
