Category: Cognitive Bias

The less-is-better effect is a type of preference reversal that occurs when the lesser or smaller alternative of a proposition is preferred when evaluated separately, but not evaluated together. The term was first proposed by Christopher Hsee. The effect has also been studied by Dan Ariely.

In economics, money illusion, or price illusion, refers to the tendency of people to think of currency in nominal, rather than real, terms. In other words, the numerical/face value (nominal value) of money is mistaken for its purchasing power (real value). This is false, as modern fiat currencies have no intrinsic value and their real value is derived from their ability to be […]

In psychology, the negativity effect is the tendency of people, when evaluating the causes of the behaviors of a person they dislike, to attribute their positive behaviors to the environment and their negative behaviors to the person’s inherent nature. The negativity effect is the inverse of the positivity effect, which is found when people evaluate the causes of the behaviors of a person […]

Selection bias is a statistical bias in which there is an error in choosing the individuals or groups to take part in a scientific study. It is sometimes referred to as the selection effect. The phrase “selection bias” most often refers to the distortion of a statisticalanalysis, resulting from the method of collecting samples. If the selection bias is not taken into account, […]

The omission bias is an alleged type of cognitive bias. It is the tendency to judge harmful actions as worse, or less moral than equally harmful omissions (inactions) due to the fact that actions are more obvious than inactions. It is contentious as to whether this represents a systematic error in thinking, or is supported by a substantive moral […]

The optimism bias (also known as unrealistic or comparative optimism) is a bias that causes a person to believe that they are less at risk of experiencing a negative event compared to others. There are four factors that cause a person to be optimistically biased: their desired end state, their cognitive mechanisms, the information they have about themselves versus others, and overall […]

In behavioral finance, the ostrich effect is the avoidance of apparently risky financial situations by pretending they do not exist. The name comes from the common (but false) legend that ostriches bury their heads in the sand to avoid danger. Galai and Sade (2006) explain differences in returns in the fixed income market by using a psychological explanation, which they name the “ostrich […]

The outcome bias is an error made in evaluating the quality of a decision when the outcome of that decision is already known. Specifically, the outcome effect occurs when the same “behavior produce[s] more ethical condemnation when it happen[s] to produce bad rather than good outcome, even if the outcome is determined by chance.” While similar to […]

Pareidolia  is a psychological phenomenon involving a vague and random stimulus (often an image or sound) being perceived as significant, a form of apophenia. Common examples include seeing images of animals or faces in clouds, the man in the moon or the Moon rabbit, and hearing hidden messages on records when played in reverse. The word comes from the Greek words para (παρά, “beside, alongside, instead”) in this context meaning something […]

In cognitive psychology and decision science, conservatism or conservatism bias is a bias in human information processing. This bias describes human belief revision in which persons over-weigh the prior distribution (base rate) and under-weigh new sample evidence when compared to Bayesian belief-revision. According to the theory, “opinion change is very orderly, and usually proportional to the numbers of Bayes’ Theorem – but it is insufficient in amount”. In other words, persons update their […]