Behavioral economics has studied many biases that influence our decisions. The following are some of the more common ones.
Bias Type: Anchoring Bias
Definition: Cognitive bias that causes us to rely too much on the first piece of information on a topic. Subsequent information is interpreted based on the reference point of our “anchor.”
Example: The frst price a dealer gives us for a car sets our interpretations of the price of the car. If they lower the price, the price seems more reasonable, regardless of whether the price is too high.
Bias Type: Confirmation Bias
Definition: Cognitive bias in which we seek out information and notice it if it confirms an existing point of view. We tend to ignore or reject conflicting information that does not ft with our view.
Example: Picking a specific news or media source can limit what an individual is exposed to. People who have pre-existing party biases may tend to watch only networks that support their party and views, while rejecting or ignoring opposing channels.
Bias Type: Actor-Observer Bias
Definition: Bias where we attribute our own actions to external causes or situational factors while attributing others’ actions to internal causes, such as personality traits or motives.
Example: If you are scheduled to interview someone, but they show up 30 minutes late, you may attribute their lateness to their personality. However, if the roles were switched and you were the one running late, you might not blame yourself but rather attribute it to traffic or other situational factors.
Bias Type: Correlation Causation
Definition: A bias where someone inaccurately perceives a cause-and-effect relationship based on an assumed association or correlation between two events.
Example: As ice cream sales increase, crime rates increase. However, ice cream sales do not “cause” crime. Rather, there is another variable likely affecting each, such as the summer heat.
Bias Type: Rhyme as Reason
Definition: A cognitive bias where rhyming statements are more easily remembered, repeated, and believed.
Example: O.J. Simpson’s lawyer, Johnnie Cochran, used the phrase “If it doesn’t ft, you must acquit.” Cochran was referencing the gloves that were left at the murder scene. This phrase was considered a vital part of his defense.
Bias Type: Loss Aversion
Definition: Choosing to avoid a loss, even with potential to make an equal or even greater gain.
Example: Investors may hold their stock even if they are taking a loss so they can “at least break even” and sell for the price they bought. If they sell below the price they paid, they are experiencing a loss.
Bias Type: Herd Instinct
Definition: Tendency for individuals to think and behave like the people around them.
Example: During the frst few months of the COVID-19 pandemic, Robinhood and other trading platforms experienced a marked increase in new accounts, primarily new investors with little to no experience.
Bias Type: Information Bias
Definition: Using extra information to increase your confidence in a choice, even if the information is irrelevant.
Example: For example, believing that the more information that can be acquired to make a decision, the better, even if that extra information is not related to the decision.
Bias Type: Status Quo Bias
Definition: Preferring to keep things the same as they are.
Example: Rejecting new ideas just because they are new.
Bias Type: Halo Effect
Definition: Extending positive attributes of a person or brand to the things they promote or the opinions they hold.
Example: For example, any celebrity and athlete endorsement that creates goodwill for a brand.
Bias Type: In-group Bias
Definition: Preferring people who are part of your “tribe” and acting in ways that confirm membership in the group.
Example: For example, always trusting the views of your political party and voting accordingly.
Bias Type: Bizarreness Bias
Definition: Remembering material more easily if it is unusual or out of the ordinary.
Example: For example, remembering facts about dinosaurs more readily than those about more academic topics.
Bias Type: Google Effect
Definition: Not bothering to try to remember information that can be found online.
Example: For example, not caring about historical events because, “I can always look them up!”
Bias Type: Picture Superiority Effect
Definition: Learning and recalling concepts more easily when they are presented as a picture rather than as words.
Example: Advertising uses this to great effect. For example products are shown in the midst of very happy people. However, if an ad contained the words, “Beer makes you happy,” many people would disagree.
Bias Type: Humor Effect
Definition: Remembering things easier if they are presented in a funny or entertaining way.
Example: Believing that political cartoons are true and unbiased because they are funny.
Bias Type: Peak-end Rule
Definition: Judging an experience by its peaks (highs and/or lows) and how it ended.
Example: “All’s well that ends well!”
Sources: Coglode Ltd. (2021); Kendra Cherry (2020); The Decision Lab (2022); Shahram Heshmat (2015); Connie Mathers (2020); Gretchen Hendricks (2021); Daniel R. Stalder (2018); Anthony Figueroa (2019); Itamar Shatz (2022); Craig Shrives (2022).
As the field of Behavioral Economics expands, researchers identify more and more biases that humans have. Thus far, researchers have found that humans have 188 cognitive biases.