![]() ![]() Hindsight bias, or knew-it-all-along effect, is when you notice actions to be more predictable after they arise. Suppose you are late due to a flat tire, you expect others to consider the fault to the external factors i-e a flat tire, instead of your behavior. However, things are not the same when the same problem occurs with yourself. For example, when someone from your team arrives late in a vital meeting, you might feel slow or lack motivation without paying attention to their internal and external factors such as sickness or traffic accident that made them arrive late in the meeting. This bias attributes someone’s behaviors to present unfounded stereotypes while attaching our beliefs and behavior to outside factors. Via this mental shortcut of ours, we consider the information that we can quickly recall and ignore all the facts and alternative solutions. Or “the availability heuristic” describes the tendency to utilize all the information that we can recall when concluding any topic or making any decision even if the “recalled” information is not suitable or relevant to the topic or concept. This bias blames outside circumstances for disasters and bad situations, and people don’t take responsibility for those bad events. It can be defined as an assumption that we will encounter only “good.” Plus, people think that they have done all the right things, but disasters happen because of uncontrollable circumstances or incidents. This type of cognitive bias tends to eliminate neutrality from team selection or hiring process, as decision-makers support those who are close and personally known. This bias reflects how people support or believe someone who is like-minded and hails from their own community or social group instead of an outsider. ![]() Furthermore, the bias also makes people imagine that they are more better and smarter than the others, just because of a reduced complex idea and simplistic understanding. However, the Dunning-Kruger Effect reduces curiosity, and more than often, people don’t explore any other idea or concept, as the existing one seems simplistic to them. When you have less knowledge about something, the less difficult that things look, it is natural. The bias indicates how people observe a concept or event to be naïve due to a lack of understanding or simply thinking. All the evidence that confirms the facts are often overlooked due to your personal beliefs. This attention-giving often leads to the ostrich effect. People will give priority to those things that matter to them the most and not give importance to other things. Furthermore, confirmation bias can be classified as a particularly “wicked” subset of cognitive bias. This bias states the tendency to seek out information and details that support your belief. List of cognitive bias types and examplesīelow are some common types of cognitive bias that you will find in behavioral finance. Here are some common cognitive bias types and examples. The way you remember any particular event or incident may be biased due to several reasons, and that can lead to biased decision-making. Some of the biases are due to past experiences and memory. The issue is that these shortcuts aren’t always rational, and they are mostly based on your life experiences. Your brain creates shortcuts that curtail the time to process the information. However, in a few cases, cognitive biases make our decision-making efficient and quicker. Furthermore, these biases lead to decision-making that differs from rational objectives. Mostly this happens because you are engulfed with various information from several sources. ![]() What is cognitive bias?Ī cognitive bias is an error that arises in your reasoning and misinterprets information from the surroundings and leads to a wrong decision. In case you don’t know what cognitive bias is, let me define it. These biases affect your thinking, decision making, beliefs and also impact judgments. However, the reality is we are constantly under the impact of several biases. Most individuals think they are rational.
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