Which bias is demonstrated by the statement that we throw good money after bad?
As we go through life, we tend to think that we make decisions based on objective information and events that have happened. Show
We also tend to imagine that our brains work like tiny but powerful supercomputers. We imagine they take in facts and make rational judgments. But the truth is a little more complicated than that. While we think we're objectively taking in information, the truth is otherwise. There are several cognitive biases that can alter how we make decisions. These biases can lead us to make inaccurate judgments. And also make us behave in irrational ways. Let’s take a look at some common forms of cognitive bias and how we can overcome them. What is cognitive bias, and how does it impact our way of thinking?At their core, cognitive biases are our brain’s attempt to be efficient and make decisions quickly. They serve as mental shortcuts so that our brains can speed up information processing. They help us more quickly make sense of what we’re seeing and move on to make a decision. In this sense, they're considered an “adaptive tool.” These mental shortcuts exist to make our brains more efficient. But instead, they can create systematic errors in our way of thinking. This is because they rely on our perceptions, observations, and experiences and not on actual facts. In reality, we see the world through our own set of filters and make decisions based on them. It’s important to acknowledge that these filters aren't “factual.” Instead, they reflect our own particular perceptions and experiences. These biases can lead us to avoid information that we don’t like or don’t want to see. Additionally, they can cause us to see patterns that don’t exist. While many of the cognitive biases we experience are unconscious, we can take steps to avoid them. Before we can delve into avoiding cognitive biases, we need to understand these biases and where they're most likely to show up. What are the signs of a cognitive bias?There are some sure signs we can tune into that help us determine if a cognitive bias is interfering with our decisions. Although these signs might be easier to spot in others, we can work to recognize them in ourselves. Signs that you could be experiencing cognitive bias include:
Common types of cognitive bias and examplesAmos Tversky and Daniel Kahneman first introduced the idea of cognitive bias in 1972. They demonstrated that people often made judgments and decisions that weren't rational. There is now research across the fields of social psychology and behavioral economics confirming dozens of cognitive biases. Usually, these cognitive bias examples are due to ignoring relevant information. Or they’re due to giving weight to an unimportant but salient feature of the situation. Let’s look at some common biases that receive the most research attention and have the greatest impact on how we navigate the world:
You've probably met someone who thought they could do anything. That's an overconfidence bias. It could be overestimating your driving abilities on the highway. Or it could be knowledge of the stock market while investing. Why should you try to eliminate biased thinking?There are a number of reasons we should strive to eliminate cognitive biases and biased thinking. At its core, biased thinking makes it difficult for us to exchange accurate information. It can lead us to avoid information that we don’t like and fail to recognize information that could lead to a more accurate outcome. Biases distort our critical thinking and can cause us to make irrational decisions. And finally, they can harm our relationships. Biases can cause us to make inaccurate judgments about others and then treat them accordingly. 10 tips to overcome cognitive biasesWhile cognitive biases can be unconscious, there are a number of things we can do to reduce their likelihood. 1. Be awareThe first tip to overcome these biases is to acknowledge that they exist. When we know there are factors that can alter the way we see things, we're more likely to be careful as we form judgments or make decisions. 2. Consider current factors that may be influencing your decisionIs there anything in the current situation that could lead you to feel overconfident in your convictions? Or cause you to ignore certain information? Make sure not to fall victim to the bandwagon effect, or adopt attitudes simply because others are. 3. Reflect on the pastLook for patterns in how you've perceived prior situations and where you might have made mistakes. If, for example, you see that you tend to ignore facts or overemphasize intuition. Then lean into opportunities to further explore data presented to you. 4. Be curiousBeing curious can help us avoid cognitive biases. Curiosity can help us pause long enough to ask questions. It stops us from assuming we're right. 5. Strive for a growth mindsetPeople with growth mindsets believe that cognitive ability can be developed and tend to learn from criticism. Rather than covering up mistakes, they see them as an opportunity to learn. They don’t believe that factors are “fixed” or unchangeable. Cognitive bias modification is possible with some work and effort. A growth mindset is one of many heuristics that can help move you in the right direction. 6. Identify what makes you uncomfortableAre there people or situations that rub you the wrong way? Ask yourself what makes you respond this way and whether you could have a bias that's impacting your perspective. 7. Embrace the oppositeTrying to understand an issue from both sides can make you a stronger critical thinker and help you see the world with more empathy. Push yourself to believe the opposite of your initial reaction and pay attention to what happens. 8. Seek multiple perspectivesSolicit feedback and perspectives from others. Asking others for their input can help us find potential blind spots and stop us from being overconfident. 9. Look for disconfirming evidenceGo out of your way to seek out information that runs counter to your existing belief. 10. Practice intellectual humilityIntellectual humility is about remaining open to the idea that you might be wrong. Rather than blindly standing by our convictions, it’s about asking, “what am I missing here?” Overcoming cognitive biasesWe all have cognitive biases. But there are proactive steps we can take to reduce their negative impact on our judgment. Doing so will help us improve our relationships and make better decisions. BetterUp can help your team create a more inclusive culture with less cognitive bias. See how BetterUp works by requesting a customized demo.
What is the sunk cost bias?The sunk cost fallacy is our tendency to continue with something we've invested money, effort, or time into—even if the current costs outweigh the benefits.
What is an example of the sunk cost fallacy?Choosing to finish a boring movie because you already paid for the ticket is an example of the sunk cost fallacy. Another example is keeping an incompetent employee on staff rather than replacing them because the company has already invested tens of thousands of dollars training them.
Is sunk cost really a fallacy?People demonstrate "a greater tendency to continue an endeavor once an investment in money, effort, or time has been made." This is the sunk cost fallacy, and such behavior may be described as "throwing good money after bad", while refusing to succumb to what may be described as "cutting one's losses".
What is sunk cost trap?Sunk cost trap refers to a tendency for people to irrationally follow through on an activity that is not meeting their expectations. This is because of the time and/or money they have already invested.
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