Plan Continuation Bias

One of the key ones is the possibility of continuation bias in linear processes and how easy it is to become path dependent, increasing risk and closing the capacity for adaptation as you deepen the course of action. Hence, it is important to understand that continuation errors can occur, and it is important for pilots to be aware of the risks associated with not analyzing changes in a situation and considering the consequences of those changes in order to determine whether a line-align approach is more appropriate. As the workload increases, especially in one pilot scenario, there is less and less mental capacity to process these changes and consider the potential impact they could have on the original plan. The addiction to continuing the plan can prevent crews from realizing that they need to change their course of action. [Sources: 6, 12, 13]

Plan continuation addiction can be defined as the tendency of individuals to continue with an original course of action that is no longer viable, which can often occur despite changing conditions and current information about the situation (APA, 2020). Perhaps one of the most famous applications of this concept can be seen when an airline pilot is unexpectedly confronted with bad weather (or changing conditions) when entering the ground, but instead of taking a different runway or aborting a landing, decides to move forward with landing. plan at the originally planned destination. A NASA study of nine major plane crashes in the United States between 1990 and 2000, in which crew errors were considered a likely cause, found that pilot-to-aircrew bias about the continuation of the plan tends to increase as they get closer to their destination. … [Sources: 6, 9]

In other words, the closer the aircraft is to the final approach and landing phase, the more likely it is that the crew will continue to operate even when the environment changes. [Sources: 6]

Simply put, when the journey is nearly complete, people tend to run on autopilot, ignoring changing and potentially hazardous environmental factors. The “mission at any cost” mentality tends to creep in and overwhelm the crew’s abilities. Fatigue and stress are secondary factors, but with a major impact on the rider’s exposure to non-compliance with rules / procedures. [Sources: 7]

Situational awareness (SA) failures occur when continuous deviations prevent the pilot from detecting important signals, or the pilot cannot recognize the meaning of these signals. Plan continuation deviations are more common in single-pilot light aircraft operations; NASA does not use resources at all for forensic investigations of every small aviation incident. The 2004 NASA Ames Human Factors Study found persistent deviations. The study analyzed 19 plane crashes caused by crew errors between 1991 and 2000. [Sources: 0, 5, 13]

In some incidents, we have observed a snowball effect, in which decisions or actions at one stage of the flight increased the crew’s vulnerability to making mistakes later. For example, a crew that continued a highly questionable approach during a thunderstorm found themselves in a high workload situation that may have helped them forget to turn on spoilers. While NASA’s accident analysis has focused on human behavior, for example [Sources: 7, 12]

Prejudice arises when people stick to a plan, even if it seems wrong. These signs, even if people see and recognize them, often fail to lead people in a different direction … When the signs suggesting a change in plan are weak or ambiguous, it is not difficult to predict where people are trading. if canceling the plan is somehow costly. Accident investigators often believe that accidents are a result of this bias – that the idea of ​​taking a break or changing approach becomes not only aggravating, costly, or unpleasant – becomes literally unthinkable. Simply put, avoiding continuing with a plan is the tendency of all of us to continue on the path we have already chosen or taken, without carefully checking whether this is still the best idea or even the most expedient. [Sources: 1, 10, 11]

This particular form of cognitive bias to which we humans are susceptible is more complex (especially when we view it in terms of plane crashes) than it has been described here, but the concept as a whole is interesting in that it could be studied in relation to with many decisions and paths that we persist in pursuing despite current information or even warning signs that suggest this may not be the best course of action or the most appropriate course of action. In this article, I will describe how this bias permeates our psychology, observing how it works in plane crashes, and then examining its impact on financial markets. Investors will learn how to combat this bias and improve trading efficiency. [Sources: 1, 9]

I think there is something about these stories that suggests a continuation bias (or what aviation pilots call “push-to-go”), which is the tendency of people to continue their original course of action despite changing conditions. even when the plan is no longer viable. In the event of a GPS failure, it may have to do with a feeling that the technology needs to be fixed and that we will find a better way or a way out right around the next corner. In aviation, this tendency to move forward is more commonly known as “get it done” … and is often fatal, especially among less experienced pilots. It’s a bizarre name for “goal achievement” – a plan continuation bias, which is an unconscious cognitive bias towards continuing with the original plan despite changing conditions, and can be fatal to general aviation pilots. [Sources: 0, 4, 6]

This bias can be especially strong during the approach phase, when only a few extra steps are required to complete the original plan, and can act by preventing pilots from noticing subtle indications that the initial conditions have changed. Looking at the list of cognitive biases, one of the best things to keep in mind in the mental model cheat pack is the “Plan Continuation Bias”. So when you stray too far from the wrong path, prejudices become stronger, task saturation comes into play, situational awareness wears off, and you fully defend yourself, no longer thinking about the future. [Sources: 0, 10, 12]

This quick and erroneous simulation of pilots leaves out many important factors. Flying with one pilot in light aircraft requires good rainfall, healthy routines, excellent motor skills, and an understanding of our cognitive biases. [Sources: 1, 5]

We can be responsible for sticking to the plan like the above-mentioned pilots. We bought this stock, which was a good idea at the time, and we will continue to hold it even if the reason for the purchase disappears or is not disclosed. In retrospect, we can see that we will have to change our plans to adapt to changing conditions. [Sources: 1, 9]

When studying and analyzing plane crashes, it is very easy to fall into what cognitive scientists call past bias. Automatic bias. False priorities. A tendency to over-reliance on automated systems, which can lead to incorrect automated information overriding correct decisions. Module function attribution error. In human-robot interaction – the tendency of people to make systematic errors when interacting with a robot. [Sources: 2, 12]

 

— Slimane Zouggari

 

##### Sources #####

[0]: https://generalaviationnews.com/2013/05/20/protect-yourself-from-get-there-itis/

[1]: https://timlshort.com/2019/04/24/plan-continuation-bias-in-financial-markets/

[2]: https://en.wikipedia.org/wiki/List_of_cognitive_biases

[3]: https://www.ignitecsp.com/blog/plan-continuation-bias-or-oh-crap-what-do-i-do-now/

[4]: https://sakasandcompany.com/get-there-itis/

[5]: https://www.cessnaflyer.org/flighttraining/item/799-plan-continuation-bias-just-another-name-for-get-there-itis.html

[6]: https://www.onlydeadfish.co.uk/only_dead_fish/2020/06/the-danger-of-blindly-following-machines.html

[7]: http://aviationsafetyblog.asms-pro.com/blog/the-internal-aviation-sms-threat-plan-continuation-bias

[8]: https://criticaluncertainties.com/tag/plan-continuation-bias/

[9]: https://wiseducationblog.com/2020/08/22/when-sticking-to-the-plan-makes-us-stuck-plan-continuation-bias-and-university-career-plans/

[10]: https://medium.com/10x-curiosity/plan-continuation-bias-60efcc2b4cbe

[11]: https://thedailycoach.substack.com/p/we-must-eliminate-plan-continuation

[12]: https://humansystems.arc.nasa.gov/flightcognition/article2.htm

[13]: https://skybrary.aero/articles/continuation-bias

Time-Saving Bias

When asked to estimate how much time can be saved by increasing speed, they tend to underestimate the time saved when driving at a relatively low speed and overestimate the time saved when driving at a relatively high speed. Drivers were presented with a situation of accelerating from a relatively low speed in order to reach their destination in time, and were asked to estimate the time that could be saved by changing to higher speeds. The bias in Equation 2 towards time savings was found in another study by Swenson (1973), in which participants were asked to rate the effect of increasing the speed of a physical object and underestimating the time savings at a lower speed. It also indicates that this bias is not primarily limited to cognitive tasks, because it persists when information about a problem is based on perceptual cues or active driving information. [Sources: 3, 4, 6]

Then, the driver will want to accelerate to ensure that they arrive at their destination on time, but they may misjudge the time that can be saved by increasing the speed (Svenson, 2008). The time-saving deviation of active driving cannot be attributed to the underestimation of the average speed because the participants accurately estimated the average speed. Therefore, in a queue, the average time saved by increasing the speed from 100 km/h is 2.21 minutes, which is significantly less than three minutes, t 11 = -3.228, p = 0.00403. Therefore, my participants are driving faster than necessary. And gaining more time than needed when increasing speed from low speed. The idea that driving can save more time is called time-saving bias, which was explored in a study by the Hebrew University of Jerusalem. Their results showed that participants were biased in assessing how much time they saved in assessing distance. Time and speed. [Sources: 6, 7]

Acceleration from 10 km / h to 20 km / h saves 30 minutes per 10 km, but acceleration from 20 km / h to 30 km / h (the same speed increase) saves only 10 minutes, and acceleration from 30 km / h to 40 km / h saves only 5 minutes. we reach the speeds that are probably of interest to us, the time savings are minimal. As in the case above, increasing the speed by just 5 km / h only saved two minutes, but looking at just 65 km / h it looks like it will save a significant amount of time. Acceleration saves time, but less and less as the starting speed increases. 10 km is ten times higher per 100 km, but the time saved by traveling at 100 km / h instead of 90 km / h per 100 km is a paltry 7 minutes. It turns out that the widespread, almost universal assumption that we will get where we are going faster if we move at higher speeds is, if not false, then at least much less important than we might imagine. Once established, it seems obvious. [Sources: 1, 7]

Lowe believes that if the driver increases the average speed to 65 km per hour, it will reduce his trip to two minutes. In a number of studies, I have found that consumers actually make mistakes in these judgments and overestimate the benefits of higher speeds while underestimating the benefits of lower speeds. [Sources: 5, 7]

To save time, press the gas pedal a little harder to get to the spot faster. In active driving, an alternative reverse speed meter was used to reject judgment. Subsequently, the procedure was repeated, but for a different speed (and distance). [Sources: 2, 6, 7]

Great efforts are being made to persuade motorists not to accelerate, especially during vacations. Once we see we should be less frustrated when colliding with slower drivers and reduce the risk of crashes or collisions with road patrols. [Sources: 1]

 

— Slimane Zouggari

 

##### Sources #####

[0]: https://nlpnotes.com/2014/03/23/time-saving-bias/

[1]: https://www.futurelearn.com/info/courses/logical-and-critical-thinking/0/steps/9130

[2]: https://www.tandfonline.com/doi/full/10.1080/00140139.2015.1051592

[3]: https://www.sciencedirect.com/science/article/pii/S1369847811000659

[4]: https://pubmed.ncbi.nlm.nih.gov/20728651/

[5]: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2383205

[6]: http://journal.sjdm.org/13/13309/jdm13309.html

[7]: https://www.carhistory.com.au/resources/blog/does-driving-faster-actually-save-more-time

Zero-Sum Bias

For example, zero-sum bias can lead people to believe that there is competition for a limited resource in one place, but that resource is actually available for free elsewhere. Zero-sum bias can also affect the way people view transactions and transactions. In this case, they mistakenly believe that there should always be one person who benefits the most from the transaction, even when both parties benefit the same. But in a different way. Because zero-sum prejudice makes people believe that for one person to get something, another person must lose the same thing, this prejudice encourages people to believe in the antagonism of social relations. This means that zero-sum bias can lead people to mistakenly believe that within a group, there is competition for specific resources between them and other members of a specific social group. [Sources: 4, 12]

When applied to judgments between groups, the zero-sum heuristic will conclude that the gain of the other group (outer group) means the corresponding loss of their own group (inner group). The zero-sum deviation describes the intuitive judgment of a situation as a zero-sum (that is, comparing the resources received by one party with the corresponding loss of the other party), when in fact it is not zero. Zero-sum bias is a cognitive inference that leads people to (incorrectly) view certain situations as “zero returns”-they believe that one party’s gains are directly offset by the other’s losses. Zero-sum bias is a cognitive bias that makes people mistakenly regard certain situations as zero-sum, that is, mistakenly believe that the gains of one party are directly offset by the losses of the other party. [Sources: 2, 4, 5, 12]

Zero-sum deviation is a cognitive deviation from zero-sum thinking; people tend to intuitively judge that the situation is zero, even if it is not. When discussing zero-sum deviation, it is usually assumed that people generally tend to zero-sum thinking, and the solution is that we should be more inclined to treat the situation as a comprehensive positive sum. Similarly, while it makes people more likely to view the situation as a positive number, it sometimes makes them more cooperative, but this factor may be overestimated. [Sources: 8, 11]

Placing two groups in a non-zero-sum situation where cooperation leads to mutual gain and competition leads to mutual loss, as in the Robbers Cave experiment (Sherif et al., 1961), can conceptually reduce bias to zero-sum (Wright, 2000). ). One of the main ideas of economics is that trade is mutually beneficial, making both sides better than they were before. “One of the mistakes we often make when we think of trading is to view it as a great deal, not a win-win. [Sources: 5, 10]

A situation involving a set of objects is zero sum if the profit of one object represents another loss, while a situation is a positive sum if the participating objects can achieve the best possible result by cooperating with each other. This includes cases where the situation is considered to be a zero sum, which means that the gains of either party in the scenario are directly offset by the losses of the other parties involved, or that domain expansion should be at the expense of one. Decrease of the other. [Sources: 3, 4]

For example, it can be assumed that zero-sum bias is highly egalitarian (Katz and Hass, 1988) and prosocial (Van Lange et al., 1997; Kurzban and Houser, 2005) for people from a collectivist culture. ) Or collectivism (Triandis, 1995). Emotional adaptation can include jealousy (Hill and Buss, 2008), and cognitive adaptation can include zero-sum heuristics, because the achievements of others often mean their own losses, especially for inseparable resources such as peers and senior positions. Rank in an organized hierarchy. Since zero-sum deviation is very beneficial to the survival of early humans, natural selection ensures that it is still an instinctive way of thinking of modern humans. [Sources: 1, 5]

This is a harmful way of looking at the world, not only for others, but also for yourself. A universal belief system about the opposing nature of social relations, shared by people in society or culture, and based on the implicit assumption that there are a limited number of goods in the world, one of them wins the others and loses, and vice versa, [. ..] A relatively lasting and common belief that social relations are like a zero-sum game. In other words, they think that losing one person is gaining another. [Sources: 0]

Some people try to have a principled argument based on the money they bring to the company or the salary of others (higher) in order to do the same work. It should be noted that you need to consider how to create value for the other party. Some people try to get job opportunities by making more money elsewhere, and they can negotiate based on their value to others. [Sources: 7]

In such a context, people gain more resources for themselves by taking resources from others. The ancient people who survived and reproduced most successfully were the ones who intuitively felt that the receipt of resources by one entity could only occur at the expense of the loss of resources by another entity. Thus, a creature that “benefits” from a situation or has more pie can only come at the expense of all other creatures that have suffered a loss or received less pie. [Sources: 1, 3]

If a creature takes a larger piece of the pie, it means that all other creatures should be content with a smaller piece. Therefore, whenever another creature takes one unit of this limited supply – be it a toy, a piece of land or prey – it means that you have one unit less of this resource at your disposal, which increases the chances of you having a hard time surviving. [Sources: 1]

Under nonzero conditions, for example, when unlimited resources are available, applying this heuristic leads to a skewed judgment that the desired resources are no longer available. The relative neglect of opportunity cost in the context of altruistic action can be seen as a form of positive sum. [Sources: 5, 8]

If you feel like there is no alternative but to split the fixed pie, you may not be able to look for places to create value. For example, a child may mistakenly believe that he is in a zero-sum situation when it comes to the love his parents have for him and his siblings, which means that the love they have for the child must come from love. felt for others. This study offers only an introductory look at the roots of such thinking, but it reminds us that our common disagreements on economic issues are rooted in deeper views of the human personality and the fundamental nature of human relations in economic life (and beyond). .). [Sources: 6, 7, 10]

But the vision, enriched by economic history and theology, positions humans not only as mouths devouring the Earth’s resources, but also as productive gardeners and sub-creators, engraved with a divine creative spark. – buyers versus sellers, employees versus employers – we can rethink our work in the global economy as creators and servants, employees and contributors working with our neighbors to paint a big picture of the abundance and harmony of God in society. [Sources: 10]

 

— Slimane Zouggari

 

##### Sources #####

[0]: https://www.goalcast.com/what-is-zero-sum-thinking/

[1]: https://academy4sc.org/video/zero-sum-bias-i-win-you-lose/

[2]: https://www.mendeley.com/catalogue/dd5c3469-a59d-35bd-b6c7-16567e8b5780/

[3]: https://www.lesswrong.com/posts/aAFanvZnmPJb666EQ/fight-zero-sum-bias

[4]: https://effectiviology.com/zero-sum-bias/

[5]: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3153800/

[6]: https://psych.substack.com/p/zero-sum-bias-

[7]: https://www.psychologytoday.com/us/blog/statistical-life/201804/the-zero-sum-fallacy-in-negotiation-and-how-overcome-it

[8]: https://stefanfschubert.com/blog/2020/10/6/positive-sum-bias

[9]: https://cognitivebiases.net/zerosum-bias

[10]: https://blog.acton.org/archives/122444-win-win-denial-the-roots-of-zero-sum-thinking.html

[11]: https://dbpedia.org/page/Zero-sum_thinking

[12]: https://mmpi.ie/zero-sum-bias/

Disposition Effect Bias

Investor portfolios are mainly concentrated in funds with low volatility in several markets and real estate funds, and 90% of assets are real estate investment funds, although the largest positions are held by funds with several markets. A study by Odean and Barber (1999) found that brokerage investors trade too much – detrimental gains – and tend to sell winners and keep losers (disposition effect). One of the main researchers on the topic, Terrence Odean of the Haas Business School, published results that show that “investors with discounted brokerage accounts in the United States sold winners more easily than losers, in line with investor emotional bias. United States: Loss aversion and cognitive bias in the belief that winners and losers will return to the mean. [Sources: 3, 14]

This bias occurs when an investor holds losses for too long by selling assets too quickly after making a profit. The disposition effect is a behavioral bias based on the idea that investors are unwilling to incur losses. This refers to the tendency of investors to sell assets that have risen in value while maintaining assets that have fallen in value. Alexander Joshi summed up the disposition effect as an arrangement that investors must hold in order to lose positions longer than winners, saying that investors will exemplify risk-taking by holding back losers because they don’t like losses and are afraid to prevent them. [Sources: 1, 4, 8]

Or, investors may wish to freeze funds to avoid the risk of selling the winner. Dacey and Zielonka showed that despite the disposal effect, the greater the volatility of stock prices, the greater the likelihood that investors will sell losers. The disposal effect refers to the tendency of investors to sell profitable stocks prematurely and to continue losing stocks for too long (Shefrin & Statman, 1985). The disposal effect refers to the tendency of investors to sell winners prematurely and keep losers for too long. This is one of the most well-documented and reliable decision-making biases. [Sources: 4, 7]

The disposition effect revolves around the view that investors have an emotional bias towards loss aversion. The rational and emotional responses that lead investors to practice disposal effects have much in common with another type of prejudice—loss aversion. The alienation effect has been described as one of the strongest realities for individual investors, because investors hold depreciated stocks but sell appreciation stocks. The order effect describes how investors often sell stocks that have risen in value when they can hold stocks in the hope of obtaining higher returns. [Sources: 2, 4, 14]

Investors tend to sell assets that have brought them positive returns and are reluctant to let go of those that have brought them losses. In addition, this article notes that seasoned investors are more likely to sell winning assets and contain losses. [Sources: 3, 13]

This document calculates the proportion of realized profits and the proportion of realized losses to see if investors are suffering from the alienation effect. An alternative way to study the alienation effect is to take into account that realized / paper gains and losses are independent not at the transaction level, but at the account or investor level [13]. The alienation effect relates to the way investors tend to view unrealized gains and losses on financial assets. [Sources: 3, 6, 9]

However, many studies have shown that when rebalancing and stock prices are checked, there is still a disposition effect and that investments that investors choose to sell continue into the following months to outpace the losers they own [cf. Odean (1998). , Brown et al. Regardless of the argument used, rational or behavioral, the presence of a disposition effect means that investors (individuals or institutions) will not receive optimal returns. Among the arguments that provide behavioral reasons for explaining the effect of disposition, the former predicts that investors have a value function, as argued by prospectus theory. Likewise, investors exhibit the opposite effect of disposition when they perceive their investments as progress towards a specific investment goal rather than an overall investment. [Sources: 1, 4, 9]

Compared to this level of analysis, Dhar and Zhu (2006) confirm a significant disposition effect on average, but show that a fifth of investors exhibit opposite behavior and that the disposition effect is stronger for less experienced investors. This article provides evidence that risk averse investors are more prone to the predisposition effect, males are less prone to this cognitive bias, and age is not associated with the predisposition effect. This article shows that gender is an important trait in understanding cognitive biases and that an investor’s experience may not necessarily be a factor in softening an investor’s position in a liquidity-constrained market. [Sources: 3, 9]

Previous research has mainly focused on the influence of demographic characteristics (eg, age, gender), investor preferences (eg, trading frequency), and trading environment (eg, the importance of information about the purchase price of a security) on the effect of disposition (Taylor and Ogilvy). , 1994; Chen et al. 2007; Da Costa et al., 2008). Our findings provide invaluable guidance for individual investors in making financial decisions based on their characteristics. Journal of Finance, 53 (5), 1775-1798. argues that the reasons for the disposition effect are more consistent with the behavioral arguments, as his research showed that even when all of the arguments listed earlier are under control, investors still exhibit a disposition effect. A corollary of this logic is that the consistency of past performance acts as a fundamental incentive to effectively realize a gain or loss if a return to mean bias affects the manager’s decision-making process. [Sources: 1, 7]

The constant (beta0) measures the investor’s propensity to sell stocks at a loss, and the sum of the constant plus the profit rate (beta0 + beta1) measures the investor’s propensity to sell stocks at a loss. Profit is a dummy variable. If the weighted average purchase price of stock j is less than the current market price of stock j, then this variable is equal to 1, otherwise equal to 0. Sale is a dummy variable. If the amount of asset j in the investor’s account decreases between the previous month and today, it is equal to 1, otherwise it is equal to 0. [Sources: 13]

This table contains the date (first column) when at least one of the two investors opened a position (buy or sell). The results in the second group (SRD) and the third group (warrants) in Table 7 show that these four groups are prone to bias, and for experienced traders, the disposal effect seems to be slightly lower (for SRD investors) DE is 0.045, for investors it is 0.043). For inexperienced investors, the warrants are 0.051 and 0.055 respectively). [Sources: 9]

Taken together, these results indicate that FSE can promote both risk-taking in the area of ​​losses and risk-aversion in the area of ​​profit, resulting in a greater willingness to sell winning stocks too early and hold on to losing stocks too long. For example, [9, 10, 12, 15] explains social interaction as a way of social control and finds that it enhances the disposition effect because investors want to preserve their reputation by postponing recognition of losses when their transactions are open to others. Overall, this paper suggests that social trading platforms can play a positive role in helping investors make better decisions. [Sources: 5, 7]

 

— Slimane Zouggari

 

##### Sources #####

[0]: https://www.investopedia.com/terms/b/bias.asp

[1]: https://www.scielo.br/scielo.php?script=sci_arttext&pid=S0034-75902015000100026

[2]: https://capital.com/disposition-effect-an-anomaly-in-behavioural-finance

[3]: https://www.emerald.com/insight/content/doi/10.1108/RAUSP-08-2019-0164/full/html

[4]: https://en.wikipedia.org/wiki/Disposition_effect

[5]: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7877604/

[6]: https://breakingdownfinance.com/finance-topics/behavioral-finance/disposition-effect/

[7]: https://www.frontiersin.org/articles/10.3389/fpsyg.2018.02705/full

[8]: https://www.nature.com/articles/s41598-021-02596-2

[9]: https://www.cairn.info/revue-finance-2009-1-page-51.htm

[10]: https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/disposition-effect/

[11]: https://www.pbs.org/wgbh/nova/money/disposition.html

[12]: https://www.sciencedirect.com/science/article/pii/S0927539819300623

[13]: https://www.sr-sv.com/understanding-the-disposition-effect/

[14]: https://www.wrapmanager.com/wealth-management-blog/what-investors-need-to-know-about-the-disposition-effect

Dread Aversion

Likewise, if your neophilia leads to impulsivity, deliberately add time to make a decision. This can not only affect the review and ultimately the results, but it will also contribute to the stress and anxiety around them. [Sources: 0, 5]

We would prefer to overcome negative experiences in order to avoid the fear of waiting. However, this desire is not as strong as the desire to immediately have a positive experience. [Sources: 3]

Loss aversion is the tendency to prefer loss avoidance to equivalent gains. What separates attention to loss from loss aversion is that it does not mean that losses have more subjective weight (or utility) than benefits. Some of these effects have previously been attributed to loss aversion, but they can be explained by a simple attentional asymmetry between profit and loss. [Sources: 2]

Even if there is no need to choose, this individual difference in the internal reactivity of the internal perception system reflects the impact of the predicted negative impact on the evaluation process, which leads to a preference for avoiding losses, rather than gaining greater but riskier profits. Before we discuss how to avoid loss aversion bias, let’s take a look at another equally important related concept. Loss aversion bias is a cognitive phenomenon in which a person is more affected by losses than by gains, that is, from an economic point of view, the fear of losing money is more than making money than the amount that can be lost. Therefore, there is trauma to prevent more damage. Many early losses. In order to avoid myopia loss aversion bias, you should know that you cannot make a buy/sell decision based on your emotions/feelings in panic. [Sources: 2, 6]

But if you are not taking risks because you are trying to avoid losses, know that the biggest risk is living without risk. Several studies on the effect of loss on decision making have not found loss aversion in terms of risk and uncertainty. In general, the role of the amygdala in anticipation of loss suggests that loss aversion may reflect an avoidance response within Pavlov’s conditional approach. Traditionally, this strong behavioral tendency has been attributed to loss aversion. [Sources: 2, 6]

In other words, heightened feelings of insecurity and risk aversion contributed to an increase in the desire to save more investments. This has had an unusual effect on economic activity and risk premiums, especially in large advanced economies. Having outlined how uncertainty and risk aversion may have affected some key parts of the global economy and financial markets in the post-GFC decade, let me now offer some hints as to what could be behind it all. A second problem, which may have contributed to heightened feelings of insecurity and risk aversion after the GFC, relates to concerns about excessive debt among households in large advanced economies. [Sources: 1]

But the key point was that for any potential growth rate, neutral rates will be lower when uncertainty and risk aversion are high. At the beginning of their research, the authors believed that the asymmetry of expectation best reflects how we approach future events. In this paper, using a new approach, we use economic survey data to assess individual differences in anticipatory emotions, finding that the tendency to feel unpleasant (horrified) at anticipating future losses outweighs the pleasure (taste) in anticipating benefits. That is, people do not like terror. Previous laboratory studies have shown that these anticipatory emotions influence decision making. [Sources: 1, 3, 8]

Research shows that instant gratification is more deeply rooted in our DNA than horror. We often worry about the future, dreading the thought of future misfortunes and savoring the thought of future pleasures. In other words, we are more averse to what we fear than what we like. Terror aversion can cause them not to think or schedule exams. [Sources: 3, 5, 9]

For example, if each group is researching and exploring different parts of a topic when it comes to hearing other groups present their findings to the class, students may object to learning or using the knowledge of other groups. Students who rely too heavily on Google for homework and checking answers (hello again, Tool Law) may get lost when they need to remember this information. Uncertainty and risk aversion are concepts that are difficult to define: they cannot be observed directly and can mean different things in different contexts. [Sources: 1, 5]

Today, I will talk about uncertainty to a large extent one-sidedly, that is, how people perceive the possibility of negative outcomes, referring to risk aversion or animal spirits related to how people act in the face of uncertainty. This is very subjective and varies from person to person and from situation to situation. Using these effects to be greater than the results of opinion polls means determining the source of variation so that they can be reliably proven in individual subjects. [Sources: 1, 2, 6]

This is the tendency to think that other people notice your behavior and appearance more than they actually do. The study found that students wore an uncomfortable shirt among other college students. [Sources: 5]

If your dog is overly afraid of these and other noises, such as fireworks, he may have an aversion to noise. Noise aversion is a fearful or anxious reaction to certain sounds, such as a thunderstorm, traffic, construction work, or a vacuum cleaner. [Sources: 4]

Negative bias is a powerful motivator because much of the research in modern media forces us to confront each other. We found 7 cognitive biases that affect classroom learning, independent learning, and the feelings of many students. Loss aversion is not a subject of behavioral finance or behavioral economics. Behavioral Economics. Behavioral economics is a branch of traditional economics that studies the influence of human psychology, ideology, or behavior on individual or institutional economic decisions. They use the concept of loss aversion bias to get people to buy as soon as possible. [Sources: 3, 5, 6]

Research shows that we crave a delicious snack right away, but prefer to defer paying our bills. This tip will also help you overcome planning error, a related effect that explains why we often think tasks are taking less time than they actually are. You may find that a few small changes in your dog’s daily routine can make a big difference. [Sources: 3, 4, 5]

Fear of you and terror of you will be on every animal on earth. I am afraid to get the test results because it might decide my whole life. [Sources: 7]

The volunteers were given the opportunity to either get a discount for one month or have an extra month to pay the bill. Waiting for a bill in the future was a stronger motivator than getting a future discount. The team conducted three studies using a dozen additional studies to support their article. [Sources: 3]

 

— Slimane Zouggari

 

##### Sources #####

[0]: https://www.merriam-webster.com/dictionary/neophilia

[1]: https://www.rba.gov.au/speeches/2021/sp-so-2021-06-02.html

[2]: https://en.wikipedia.org/wiki/Loss_aversion

[3]: https://bigthink.com/smart-skills/dread-motivational-tool/

[4]: https://www.animalhospitalofspringfield.com/services/dogs/blog/scary-sounds-halloween-how-help-dog-noise-aversion

[5]: https://blog.innerdrive.co.uk/7-cognitive-biases-holding-your-students-back

[6]: https://www.wallstreetmojo.com/loss-aversion-bias/

[7]: https://wikidiff.com/aversion/dread

[8]: https://researchportal.bath.ac.uk/en/publications/dread-aversion-and-economic-preferences

[9]: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3822640

Endowment Effect

We found that the underlying theoretical model used to explain the endowment effect, that is, the reference loss model of unfavorable preference based on the expectations of Koshegi and Rabin (2006), seems unable to explain our results in a configuration that realistically reflects the characteristics of the natural experiment we are studying. … We argue that our reporting is parsimonious as it explains both the endowment effect and the greater sensitivity of sellers to observed market prices in terms of the difference between the beliefs of buyers and sellers in the respective markets, without requiring additional avoidance assumptions (as postulated, for example , Weaver & Federico, 2012). Thus, we argue that the vesting effect may largely reflect the “adaptively rational” behavior of both buyers and sellers (given their beliefs about the respective markets), rather than any property bias or a change in their inherent preferences. … [Sources: 8, 20]

Researchers trying to understand the origins of the endowment effect in the laboratory usually study how it affects the cost of simple consumer goods using three different methods. When people have worked to create a particular product, they tend to value it more, and therefore, those products may be rated higher than their counterparts. Prototype studies of the endowment effect included mugs and other products at the same price. [Sources: 1, 3, 12]

The endowment effect is a principle of behavioral economics that describes the tendency for people to value an object they own more than if they did not. The endowment effect refers to an emotional bias that causes people to value property higher, often irrationally, than its market value. Annotation The allotment effect occurs when people assign a higher value to an object they own than the same object when they do not, and this effect is often used to reflect a property-induced change in intrinsic value that people attribute to an object. … [Sources: 3, 8, 17]

The giftedness effect refers to a cognitive bias that explains how people develop attraction to an object and overestimate it when they own it, compared to how they would rate it if they didn’t. The endowment effect is a cognitive bias that describes our tendency to overestimate what is ours, regardless of its true market value. Psychologists have proposed many explanations for this effect, but it is commonly associated with loss aversion and emotional attachment (sometimes referred to simply as the property effect). [Sources: 4, 18]

This effect describes how people can pay more money to get what they currently have than for a thing they do not own. From the point of view of standard economic theory, the effect is unexpected, because when presented with a choice between two goods, rational people choose the one with the higher value. [Sources: 10, 15]

However, the effect can still be explained using microeconomic analysis [1], since the reluctance to trade due to the endowment effect can simply be considered a mistake. If this is a misunderstanding, then people are trading too little, thereby giving up the benefits of trading. An alternative explanation for the giftedness effect is imposed by cognitive psychology and perspective theory. [Sources: 15]

In contrast to claims that consumers make biased choices that do not reflect their underlying well-being, the possibility of an endowment effect is consistent with neoclassical economics. The giftedness effect is a reflection of a general bias in human psychology in favor of how things are, not how they might be. The giftedness effect makes it clear that the value that people form in their minds for an object differs before and after it is owned or used. The endowment effect is a seemingly irrational tendency to immediately value a possessed item more than the ability to receive an identical item when it is not yet there. [Sources: 4, 5, 14, 21]

The giftedness effect builds on these assumptions, as well as elements of developmental psychology (where the object is embedded in “the owner’s self-esteem, becoming part of his personality”) to suggest why we overestimate our properties. Our brains tell us that we value something simply because it is what we have. The endowment effect occurs when we overestimate what we own, regardless of its objective market value (Daniel Kahneman et al., 1991). It is also often shown that we are unwilling to trade what we already have for something of equal value (regardless of whether that object is more or less desirable than the object we already have). [Sources: 9, 14, 16, 19]

Daniel Kahneman, Nobel laureate in economics; Jack Knutch and Richard Thaler, also respected economists, in their 1990 paper; Experimental Tests of the Effect of Giftedness and the Rough Theorem demonstrated the effect of giftedness in action. In 2009, Carnegie Mellon associate professor of marketing, Carey K. Morewedge, and a team of researchers conducted two experiments that also used coffee mugs. In one experiment, they found that shoppers were willing to pay as much for a coffee mug as sellers demanded when shoppers already owned an identical mug. [Sources: 13, 19]

The researchers found that the more a tribe is influenced by the market economy, the more likely it is to add value to the items it receives. Similar results were obtained in the second experiment, which, in addition to confirming the ownership account, found differences between how men and women value assets within the group and outside the group. With regard to non-group goods, after social self-threat in the conditions of sale, men had a lower rating for these goods compared to ordinary goods, while sellers did not show such a change in ratings. [Sources: 6, 13]

The longer people held an object, the more likely they were that their peers would prefer their object to another object. Members of the tribe who were given the items did not seem to add value to them and would have no problem exchanging these items with other members of the tribe. [Sources: 6]

When a marketer makes you feel like an owner, you are more likely to overestimate him and pay more for what he sells. The endowment effect, invented by Richard Thaler, is the sense of ownership, in which the idea of ​​ownership increases its value regardless of its objective market value. The endowment effect is so strong that even imaginary property can add value to something. [Sources: 6, 14, 22]

The endowment effect is thought to be a by-product of loss aversion theory, in which people value losses over profits. Thaler (1980) called this model – the fact that people often ask for much more in order to give up an item than they would be willing to pay to acquire it – the endowment effect. One consequence of the endowment effect is the “supply and demand gap,” which is an empirically observable phenomenon in which people often ask for a higher price to sell a product they own than they would have paid for the same right if they didn’t own it. Right now. [Sources: 7, 10, 11]

In behavioral finance, the endowment effect, or disposition aversion, as it is sometimes called, describes the circumstances in which a person attributes a higher value to an item they already own than the value they would attribute to the same item if they did not. … This. In behavioral psychology and economics, the giftedness effect (also known as alienation aversion and associated with the simple ownership effect in social psychology [1]) is the assumption that people value things more simply because they own them. [Sources: 0, 17]

 

— Slimane Zouggari

 

##### Sources #####

[0]: https://www.ventureharbour.com/the-endowment-effect-7-ways-to-use-it-to-boost-your-conversions-with-examples/

[1]: https://hbr.org/2016/05/why-buyers-and-sellers-inherently-disagree-on-what-things-are-worth

[2]: https://peoplescience.maritz.com/Articles/2019/Know-Your-Nuggets-Endowment-Effect

[3]: https://medium.datadriveninvestor.com/why-do-businesses-offer-free-one-month-trials-endowment-effect-f86105377d78

[4]: https://www.wallstreetmojo.com/endowment-effect/

[5]: https://scholarworks.gsu.edu/psych_facpub/30/

[6]: https://kenthendricks.com/endowment-effect/

[7]: https://www.aeaweb.org/articles?id=10.1257/jep.5.1.193

[8]: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7983076/

[9]: https://gohighbrow.com/much-too-good-for-children-the-endowment-effect/

[10]: https://uxplanet.org/endowment-effect-for-product-adoption-and-retention-21e130bb00b9

[11]: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=326360

[12]: https://www.wheelofpersuasion.com/technique/endowment-effect/

[13]: https://bigthink.com/articles/rethinking-the-endowment-effect-how-ownership-effects-our-valuations/

[14]: https://www.bbc.com/future/article/20120717-why-we-love-to-hoard

[15]: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0109520

[16]: https://www.adcocksolutions.com/post/no-18-the-endowment-effect

[17]: https://www.investopedia.com/terms/e/endowment-effect.asp

[18]: https://www.hustleescape.com/endowment-effect/

[19]: https://www.interaction-design.org/literature/topics/endowment-effect

[20]: https://voxeu.org/article/endowment-effects-evidence-ipo-lotteries-india

[21]: https://www.rff.org/publications/working-papers/how-much-relevance-does-reality-imply-reconsidering-the-endowment-effect/

[22]: https://blog.crobox.com/article/endowment-effect-marketing-examples

[23]: https://www.lse.ac.uk/granthaminstitute/publication/the-endowment-effect-discounting-and-the-environment/

[24]: https://reference.findlaw.com/lawandeconomics/literature-reviews/0720-the-endowment-effect.html

Loss Aversion Bias

Overcoming loss aversion leads to better opportunities not only in design, but in life in general. If you’re struggling to take risks due to loss aversion and find you can’t get past it on your own, you might consider working with a coach to overcome this and other cognitive biases. [Sources: 14]

However, we need to put this fear in perspective with our potential benefits. It makes us fear loss, even if that fear is illogical. For example, it prevents us from taking small risks for big profits. [Sources: 14]

Loss aversion is the tendency to avoid losses versus achieving an equivalent profit. In behavioral economics, loss aversion refers to people’s preference for avoiding losses over equivalent gains. [Sources: 2, 6]

For example, if someone gave us a bottle of PS300 wine, we could earn a small amount of happiness (utility). However, if we had a bottle of PS300 wine and it fell to the ground, we would be more miserable. [Sources: 2]

This meant that the psychological value (or intensity) of losing (-$ 500) was much greater than the value of winning (+ $ 500). Tversky and Kahneman (1992) have proposed that losses be estimated to be about 2.3 times the gain of the same value, while Baumeister et al. However, it has not been reliably proven that such biases occur in behavioral decision making studies, and instead it has been found that people generally give equal importance to gains and losses. In affective judgments, people exaggerate when they report their feelings about losses, but this may reflect a tendency to complain rather than true bias when comparing losses to results. [Sources: 1, 9]

We can note that mentally the effect of a loss on investor behavior is more important than the effect of profit, which characterizes loss aversion and explains the pessimism of an investor susceptible to this bias. Of course, it is true that large financial losses can have a greater impact than large financial gains, but this is not a cognitive bias requiring an explanation for loss aversion, but perfectly rational behavior. While the sunk cost effect may reflect a reluctance to recognize losses, it is not related to loss aversion, which requires a comparison of losses and gains. Similarly, there are other situations where losses are more significant than benefits, but these require specific explanations rather than general claims of loss aversion bias. [Sources: 0, 17]

For example, neuroeconomic research often proposes options up to the point where the gain is double the loss (eg, +4 versus $ -2; Tom et al., 2007). For example, “the value function is significantly steeper for losses than for gains” (Tversky and Kahneman, 1986, p. S255) and “asymmetry usually occurs because people expect the pain of losing something to outweigh the pleasure of getting it” ( McGraw et al., 2010, p. 1441). It lies in the fact that investors estimate profit and loss differently. An investor in this biased attitude uses profit to make a decision, not a loss, because he seeks to avoid the risk associated with a loss. [Sources: 1, 17]

Faced with a choice of avoiding a Rs 1,000 loss or making a Rs 1,000 profit, loss-averse investors would rather not make a loss than make a profit. Conversely, loss aversion can cause clients to hold onto investments that have lost value in order to avoid a loss in their portfolio, even if selling is a wise decision. Fear of loss can harm an investor, prompting him to hold onto losing investments long after they should have been sold, or dump winning stocks too early – a cognitive bias known as the disposition effect. Newbies often make the mistake of hoping for a recovery in stocks, despite all evidence to the contrary, because losses lead to stronger emotional reactions than profits. [Sources: 6, 13, 16]

Loss aversion is a reflection of the universal prejudice (status bias) of human psychology, which makes people resist change. Therefore, when we consider changes, we pay more attention to what we will lose rather than what we can achieve. [Sources: 11]

Experiencing the psychological consequences of loss, and even facing the possibility of loss, may even lead to risky behavior, making the realized loss more likely or more serious. Loss aversion in behavioral economics refers to the phenomenon that people think that actual or potential loss is psychologically or emotionally more serious than the same benefit. Loss aversion is a kind of cognitive bias, which refers to the tendency of humans to avoid losses in order to obtain the same benefits. [Sources: 8, 16]

Therefore, loss aversion is a principle that can explain many phenomena, such as status quo bias, sunk costs, especially the endowment effect that is often discussed (Tversky and Kahneman, 1991; Kahneman, 2003, 2011). Loss aversion, that is, the view that loss has a greater psychological impact than gain, is widely regarded as the most important point of view in behavioral decision-making, and it is also a related field of behavioral economics. The idea of ​​loss aversion was first proposed in an article entitled “Choice, Value, and Scope” published in 1984 by economists Kahneman and Tevers. [Sources: 0, 1, 14]

The study by Dr. Mei Wang surveyed groups from 53 different countries to understand how different cultural values ​​affect a person’s perception of loss versus gain. people from African countries are least afraid of loss. The cultural background of people can influence the extent to which they are averse to loss (for example, risk aversion is the avoidance of risk or the possibility of loss; this is reflected in the choice of investment. [Sources: 4, 10, 13]

For example, a person is less likely to invest in stocks if it is considered risky with the possibility of losing money, even if the reward potential is high. According to prospect theory, people prefer to avoid losses rather than gain profits. In business, loss aversion also means that companies that are doing well but not doing what they expected or others expected may behave unethically because they formulate their profit statement (but not as much profit as expected) as loss, not again. Loss aversion is tied to the concept of framing based on behavioral ethics, because the same situation can often be thought of as potential loss or potential gain, and the difference in framing can definitely influence people’s decisions. [Sources: 8, 15, 16]

However, for example, adjusting emotions from a different perspective can reduce loss aversion and help people overcome potentially unfavorable decision-making biases. Even if there is no need to choose, this individual difference in the internal reactivity of the internal perception system reflects the impact of the predicted negative impact on the evaluation process, which leads to a preference for avoiding losses, rather than gaining greater but riskier profits. Research has linked loss aversion to attention mechanisms (Yechiam and Hochman, 2013), so this is unlikely to be just a bias, but an information gathering strategy (Clay et al., 2017). David Gal (2006) believes that many phenomena usually attributed to loss aversion, including status quo bias, innate effects, and preference for safe alternatives to risk choices, are not so much loss/gain as psychological inertia. Asymmetry. … [Sources: 1, 11, 12]

— Slimane Zouggari

 

##### Sources #####

[0]: https://blogs.scientificamerican.com/observations/why-the-most-important-idea-in-behavioral-decision-making-is-a-fallacy/

[1]: https://www.frontiersin.org/articles/10.3389/fpsyg.2019.02723/full

[2]: https://www.economicshelp.org/blog/glossary/loss-aversion/

[3]: https://www.hartfordfunds.com/insights/investor-insight/risk-aversion-vs-loss-aversion.html

[4]: https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/loss-aversion/

[5]: https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/loss-aversion/

[6]: https://www.schwabassetmanagement.com/content/loss-aversion-bias

[7]: https://uxdesign.cc/cognitive-biases-loss-aversion-925149360f46

[8]: https://www.adcocksolutions.com/post/what-is-loss-aversion-bias

[9]: https://www.apa.org/science/about/psa/2015/01/gains-losses

[10]: https://thedecisionlab.com/biases/loss-aversion/

[11]: https://www.psychologytoday.com/us/blog/science-choice/201803/what-is-loss-aversion

[12]: https://en.wikipedia.org/wiki/Loss_aversion

[13]: https://www.miraeassetmf.co.in/knowledge-center/loss-aversion-bias

[14]: https://www.interaction-design.org/literature/topics/loss-aversion

[15]: https://ethicsunwrapped.utexas.edu/video/loss-aversion

[16]: https://www.investopedia.com/terms/l/loss-psychology.asp

[17]: https://www.emerald.com/insight/content/doi/10.1108/JEFAS-07-2017-0081/full/html

Pseudocertainty Effect

In prospect theory, the pseudo-certainty effect is the tendency for people to perceive a result as certain, when in fact it is uncertain in multi-stage decision making. It refers to the tendency of people to make choices that are unfavorable to risk if the expected outcome is positive, but risks looking for options to avoid negative outcomes. It refers to the tendency of people to make non-risk choices when the expected outcome is positive, but to make risk-based choices to avoid negative outcomes. Kahneman and Tversky ultimately called this effect a certainty in which people tend to prefer certain outcomes despite higher value in another scenario, even if the risk of worthlessness is less than 1% (Kahneman and Tversky, 1979). [Sources: 2, 9, 11, 13]

In multi-stage decision-making, those who are prone to the influence of the pseudo-certainty effect often reject the uncertainty of previous decision scenarios or stages when evaluating a later stage, which was obvious when those who chose option A subsequently chose option D. In prospect theory, the effect of pseudo-certainty is it is the tendency of people to perceive a result as certain when in reality it is uncertain. [Sources: 2, 7]

The effect of pseudo-certainty can be observed in multi-stage decision-making, when the assessment of the reliability of the result at an earlier stage of the decision is ignored when choosing an option at later stages. This suggests that people are adding value to completely risk-free scenarios. The Allais paradox and the effects of certainty / pseudo-certainty. This paradox refers to the violation of decision theory and contains distortions associated with the effect of certainty and pseudo-certainty. [Sources: 2, 8]

Daniel Kahneman explained the pseudo-determinism effect, and he won the Nobel Prize in Economics for his work with Amos Tversky in decision-making and decision-making theory. In an article in 1953, he described that an individual’s decision-making process may be inconsistent with the theory of expected utility (the theory of the curriculum that leads to the greatest expected utility or outcome of the individual’s choice). [Sources: 2, 13]

When there is no definite choice and the options are equally difficult to evaluate, people will find it difficult to compare uncertain results. They concluded that when people make choices in the later stages of a problem, they often do not realize that the uncertainty in the early stages will affect the results. So, know that you tend to maintain positive results, but take the risk to avoid negative results, change the wording, and see if another option makes sense. Cognitive bias is a tendency to think in a certain way, which often leads to deviations from rational and logical decisions. [Sources: 0, 3, 4, 13]

Their choice can be influenced simply by paraphrasing the descriptions of the results without changing the actual usefulness. When making certain decisions (for example, in question 1), we need to determine the probabilities of various outcomes. Summary Human decision making exhibits systematic simplifications and deviations from the principles of rationality (heuristics) that can lead to suboptimal decision outcomes (cognitive bias). [Sources: 3, 11, 12]

The preference for certainty biases the bias between option 1 and option 2 (having higher expected utility)-this choice is incompatible with the expected utility theory. In the absence of preference that may distort their certainty, people usually choose option 2 (having the highest expected utility), which is consistent with the expected utility theory. In short, people tend to focus on the positive rather than the negative when faced with choices. [Sources: 0, 3]

If you visit this page from time to time to refresh your mind, the spacing effect will help highlight some of these thought patterns to keep our prejudices and naive realism in check. [Sources: 6]

The reason for this is that, all other things being equal, people will prefer a certain payoff to an uncertain one. All four principles can influence decision-making and contribute to cognitive biases, but the extent of their influence can vary depending on biases and situations. Attention bias is our tendency to focus more on emotionally dominant stimuli and overlook other important data when making decisions. An effect whereby someone’s judgment of the logical strength of an argument is influenced by the validity of an inference. [Sources: 3, 4, 12]

To improve our understanding of cognitive heuristics and bias, we propose a neural network structure for cognitive bias that explains why our brains are systematically prone to making heuristic decisions (type 1). Based on biological and neurobiological knowledge, we hypothesized that cognitive heuristics and bias are inevitable trends associated with the intrinsic characteristics of our brains. [Sources: 12]

Basically, by phrasing choices differently, you can guide people to make the choices you want. If you want them to accept your idea, you must understand that the natural tendency will be to make choices that remain confident in saving $ 10,000, rather than risking a 20% chance of failure. [Sources: 0, 8]

Three existing explanatory viewpoints associate bias in human decision making with cognitive limitations and inconsistencies between available or implemented heuristics (which are optimized for specific conditions) and the conditions under which they are actually applied. There is also a pseudo-confidence effect where confidence is only perceived. With various cognitive biases, all of them can, to one degree or another, contribute to the distortion of information. [Sources: 5, 12]

Your choice must be made before the outcome of the first stage is known. Once you learn about cognitive biases, you can start to consider them and limit their impact on the thinking of your visitors and yours. It is your prejudice blind spot that allows you to see yourself as less biased than other people. Option 1 provides a definite victory and option 2 an indefinite win. [Sources: 3, 4, 7]

Some things that we recall later make all of the above systems more biased and more detrimental to our mental processes. The tendency to do (or believe) something because many other people do (or believe) the same thing. It is most commonly studied in psychology and behavioral economics, but it is present in all walks of life. The tendency to rely too heavily on a trait or piece of information or “anchor” when making decisions (this is usually the first piece of information we get on this issue). [Sources: 4, 6]

Convincing fully rational people to make rational decisions or take rational actions will be easy. Heal B has a 1/3 chance of saving 600 people and a 2/3 chance of not saving anyone. By keeping the four problems with the world and the four consequences of our brain’s strategy to solve them, the accessibility heuristic (and in particular the Baader-Meinhof phenomenon) ensures that we notice our biases more often. Of 152 respondents, 72% recommended strategy A and 28% recommended strategy B. [Sources: 4, 6, 8, 9]

 

— Slimane Zouggari

 

##### Sources #####

[0]: https://www.starmind.org/2010/01/28/bias-thursday-pseudocertainty-effect/

[1]: https://bias.transhumanity.net/pseudocertainty-effect/

[2]: https://medium.com/@diate.green/battling-bias-with-emotional-intelligence-volume-2-f59c5a5fd6ce

[3]: https://webutils.psy.unsw.edu.au/psyc2071_2020/decision_making/certainty.html

[4]: https://cxl.com/blog/cognitive-biases-in-cro/

[5]: http://changingminds.org/explanations/theories/certainty_effect.htm

[6]: https://betterhumans.pub/cognitive-bias-cheat-sheet-55a472476b18

[7]: https://nlpnotes.com/2014/04/06/pseudocertainty-effect/

[8]: https://www.adcocksolutions.com/post/pseudocertainty-in-marketing

[9]: https://psychology.fandom.com/wiki/Pseudocertainty_effect

[10]: https://www.alleydog.com/glossary/definition.php?term=Pseudocertainty+Effect

[11]: https://en-academic.com/dic.nsf/enwiki/648825

[12]: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6129743/

[13]: https://en.wikipedia.org/wiki/Pseudocertainty_effect

Status Quo Bias

In behavioral economics, we can observe how people choose to pay more attention to what they already have. In other words, loss aversion motivates people to stick with what they have. [Sources: 6]

In other words, people don’t like uncertainty and don’t want to make choices. Rather than taking the risk of trying an unknown drug that may have unknown effects, people choose to stick with what they know, even if it’s potentially not as good as the alternatives. [Sources: 6, 11]

The addiction to the status quo forces people to keep their financial situation as it is now, instead of risking an improvement in their financial prospects. A shift in the status quo is evident when people choose to keep things the same, doing nothing (see also inertia) or sticking to a previously made decision (Samuelson & Zeckhauser, 1988). [Sources: 2, 11]

This can happen even when there is little transition cost and the importance of the decision is very high. For example, a person may decide to maintain their current situation due to the potential transition costs of switching to an alternative. When making important choices, people are more likely to choose the option that keeps things as they are. Conversely, if you destabilize their preferences, you increase their willingness to change. [Sources: 2, 3, 11, 12]

One such phenomenon is the impact of expected regret; status quo bias is a strategy to reduce regret5. The status quo-so regret our decision. This is due to the concept of choice overload, which shows that a larger set of choices leads us to make worse decisions6. In fact, some people might argue that the status quo bias is not at all eligible for decision-making; some researchers classify this bias as a form of avoiding decision-making. 7 When there are various options and you are not sure which is the best, choosing default values ​​can be a way to avoid decision-making pressure. solution. This may jeopardize our decision-making ability and prevent us from choosing the most profitable option due to fear of failure. [Sources: 1, 5]

Even when a new option or choice is proposed, we tend to stick with the default option. If we stick to current decisions to avoid the cost of making decisions, then this can be seen as a rational choice, since we save on computational costs. When making decisions, people tend to consider the more valuable option when they have chosen it. [Sources: 3, 6, 10]

One explanation is that in order for individuals to change course to adapt to their current situation, this means that alternatives must be considered twice as beneficial. The answer is simple. People will naturally find that change is expensive, dangerous, and risky. This may be a form of risk aversion inherent in the status quo bias: people who do not want to lose their current reality will choose to stay, even at the cost of living in reality rather than virtual reality. [Sources: 0, 12]

Research shows that when people make a decision, they weigh potential losses more than potential gains. On the contrary, they are more willing to continue the path they have chosen, even if the alternative is objectively better. Whether you realize it or not, you are naturally inclined to choose the path of least resistance in decision-making. [Sources: 3, 12]

It is much easier and safer to stick with your current course of action than to risk something new. Change can be intimidating to many people, which is why many prefer things to stay the way they are. [Sources: 11, 12]

Indeed, through a series of daily decisions such as moving or changing a car, or even changing TV channels, there is a noticeable tendency to maintain the status quo and refrain from action (1). It is in these cases, where the decision conflicts with the surrogates’ preferences to act in the patient’s best interests or to fulfill the patient’s wishes, and when the decision is therefore irrational, that a status quo bias may be the culprit. Once life-sustaining treatment has begun, clinicians can address the effects of status quo bias by recognizing signs of neglect bias, empathizing with surrogate mothers who express or imply concerns about stopping supportive care, and then feel responsible or blameworthy for the death of patients. … [Sources: 5, 9]

The results of this study indicate that there may be a status quo bias in the stated choice studies, especially with regard to drugs that patients must take on a daily basis, such as the maintenance drugs for asthma. One study found that when people are given a choice between their current drug and an even better drug, people are biased in choosing their current drug. In an open-choice study among asthma patients taking prescription maintenance drugs, there is an experiment to determine if there is a status quo bias towards current drugs, even when better alternatives are offered. [Sources: 4, 11]

Acceptance bias was observed in tests of high but not low difficulty, resulting in suboptimal selection behavior. This default bias was observed in 13 out of 16 subjects and, more importantly, resulted in suboptimal behavior choices. The addiction to the status quo was even more evident in older participants, as they chose to keep their initial investments rather than change them as new information emerged. [Sources: 4, 9]

The status quo bias is explained by a number of psychological principles, including loss aversion, sunk cost, cognitive dissonance, and simple exposure. Status quo bias The classic human decision-making model is the rational choice or “rational actor” model, the idea that people will choose the option that is most likely to satisfy their preferences. When faced with a choice, it is not always obvious which decision will be correct. [Sources: 1, 3, 5]

The status quo bias must be distinguished from the rational preference for the status quo, for example, when the current state of affairs is objectively superior to available alternatives, or when incomplete information is a serious problem. For example, prejudice is often used to explain why people do not take advantage of investment and savings opportunities. David Gal and Derek Rucker disputed the interpretation of loss aversion to the status quo bias. They argued that the evidence of loss aversion (that is, the tendency to avoid loss rather than seeking profit) and the inertial tendency (the tendency to avoid interference rather than interfere with the course of things). [Sources: 4, 11]

In addition to the significant main effect of status quo bias in all four experiments, we show that consciousness and an internal locus of control, as well as the presence of self-interest, significantly reduce susceptibility to status quo bias. Since the modulating parameters (in this case, the effect of the default deviation) in DCM are expressed as a fraction of baseline connectivity, we conclude that the default deviation induces prefrontal STN dynamics that is largely absent when the status quo persists. Analysis of actual connectivity showed that the inferior frontal cortex, a more active area for difficult decision-making, had an increased modulating effect on the STN during the transition from the status quo. [Sources: 7, 9]

 

— Slimane Zouggari

 

##### Sources #####

[0]: https://www.psychologytoday.com/us/blog/after-service/201609/how-powerful-is-status-quo-bias

[1]: https://thedecisionlab.com/biases/status-quo-bias/

[2]: https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/status-quo-bias/

[3]: https://www.thoughtco.com/status-quo-bias-4172981

[4]: https://en.wikipedia.org/wiki/Status_quo_bias

[5]: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5837876/

[6]: https://www.economicshelp.org/blog/glossary/status-quo-bias/

[7]: https://www.sciencedirect.com/science/article/pii/S0969698921003593

[8]: https://www.aeaweb.org/articles?id=10.1257/jep.5.1.193

[9]: https://www.pnas.org/content/107/13/6005

[10]: https://www.wheelofpersuasion.com/technique/status-quo-bias/

[11]: https://www.verywellmind.com/status-quo-bias-psychological-definition-4065385

[12]: https://corporatevisions.com/status-quo-bias/

System Justification

According to SJT, people are driven by a system-oriented conscious or unconscious need to “protect, maintain, and prove existing social, economic, and political systems and arrangements” (Jost and Kay, 2010, p. 1148), which represents a kind of Different types of human motivation because it can only maintain the status quo (Jost and Banaji, 1994, p. 10). System principle theory attempts to understand how and why people provide cognitive and ideological support for the status quo, and what are the social and psychological consequences of maintaining the status quo, especially for members of disadvantaged groups (eg Jost & Banaji, 1994; Jost & Burgess, 2000 ). [Sources: 2, 4]

In Justification Theory, John Yost argues that we are motivated to defend the status quo because, in doing so, we satisfy basic psychological needs for confidence, security, and social acceptance. Systems rationale theory refers to the socio-psychological tendency to defend and strengthen the status quo, that is, to see it as good, just, legitimate, and desirable. According to the original formulation of the SJT (Jost and Banaji, 1994) and its subsequent refinements (for example, Jost et al., 2004), this system-oriented motivation seems to be rooted in epistemic needs (for example, to avoid uncertainty), existential needs (for example, to reduce stress and threat) and relationship needs (for example, to accept shared realities; Jost et al., 2008), which is most pronounced when people crave predictability and / or confidence within a strong system on which they depend (Jost, 2017). [Sources: 2, 4]

Systems rationale theory argues that people have a strong motivation to see themselves, their social groups and structures that favorably affect their lives, and therefore they tend to view prevailing status hierarchies as fundamentally fair. In short, according to SIMSA’s explanations, there is evidence that the system’s justifying effect may be an attempt by the disadvantaged to protect, defend and strengthen their social identity. The SJT postulates that an underlying ideology motivates justifying social order in a way that fosters an often unconscious belief in inferiority among people from disadvantaged groups [3]. This assumes that people are motivated to defend, justify, accept, rationalize and support the social, political and economic systems in which they live and work (Jost, 2020). [Sources: 2, 3, 4]

Therefore, when the status quo persists (that is, economic inequality increases), liberals show more zero-sum thinking, and when the status quo (that is, reduced social inequality) is questioned, conservatives show more zero-sum thinking. thinking. Similarly, studies 5A and 5B show that challenging the status quo to express problems will enhance conservatives’ zero-sum thinking, while maintaining the existing social structure to express problems will enhance liberals’ thinking. We predict that even considering the same issues, conservatives will show more zero-sum thinking than liberals when it comes to challenging the status quo, but when the status quo persists, the situation is the opposite. Instead, people focus on extreme dominance to justify punishment of female agents, and extreme weakness or inactivity to justify punishment of atypical men, because these gender rules legitimize and strengthen the gender status quo. . [Sources: 0, 7]

Although compared with liberals, conservatives are less likely to view the economic status quo as a zero sum, but they are more likely to view society’s challenges to the status quo as such [(101) = 0.61, <0.001]. Therefore, in Study 2, we studied the relationship between ideology and zero-sum thinking about social issues (the status quo in the United States is often questioned) and economic issues (the status quo is usually kept unchanged). People often defend the existing social system, which seems to be self-contradictory, even if it has individual and collective costs [1]. Since the justification system operates based on personal fear and lack of self-esteem, for example, if the narcissist believes that he is gaining personal gain, that is, he has the opportunity to rise to the highest level, it will encourage the narcissist to defend the hierarchy [19]. [Sources: 3, 7]

Change is especially difficult if there is an ideological system that proclaims an authoritarian culture of inequality, which, according to the SJT, tends to become entrenched as a culture of justification [6]. The nation’s connection with God further strengthens people’s confidence in the justification of the system [7]. However, the ongoing debate around this phenomenon is now focused on why the underprivileged generally remain so. [Sources: 3, 4]

It is important to understand the point of view of individuals on the significance and scale of systems, since they can serve as justifiers of systems of different degrees in relation to different systems [1]. Hence, it stresses the motivation of workers to maintain a social hierarchy (that is, our structure is motivational, not just cognitive). Rather, workers see the actor refuting stereotypes (especially their status components) as a violation of prescriptive and / or prescriptive rules; consequently, perceivers feel entitled to unleash their own prejudices and punish the atypical actor. [Sources: 0, 3]

In contrast, the backlash prevention model argues that people cannot do their best because a justified fear of social rejection undermines the perceived right and optimal self-regulation flame (high promotion, low warning). The preference is given to existing social, economic and political agreements, and the alternatives are denigrated, sometimes even to the detriment of individual and collective interests. [Sources: 0, 1]

First, the SIH specifically proposes that the violation of status, rather than any violation of roles or stereotypes, should provoke backlash. Courtesy bias – The tendency to express a more socially correct opinion about your true opinion so as not to offend someone. The tripping effect is the tendency to do (or believe) something because many other people do (or believe) the same thing. [Sources: 0, 1]

Irrational escalation is a phenomenon in which people justify an increase in investment based on previous cumulative investment despite new evidence that the decision was probably wrong. However, these theories overlap as they both focus on how stereotypical anxiety undermines people’s ability to give their best, even when it’s critical. The ambiguity effect is the tendency to avoid options for which the likelihood of a favorable outcome is unknown. [Sources: 0, 1]

 

— Slimane Zouggari

 

##### Sources #####

[0]: https://www.sciencedirect.com/topics/psychology/systems-justification-theory

[1]: https://www.nextstageradicals.net/blog/cognitive-biases-hold-back-organisational-learning/

[2]: http://lex-biuro.pl/9zb5niis/social-justification-theory

[3]: https://mathias-sager.medium.com/why-people-justify-social-systems-that-disadvantage-them-58b9d9baf3de?source=post_internal_links———2——————————-

[4]: https://www.frontiersin.org/articles/10.3389/fpsyg.2020.00040/full

[5]: https://www.jstor.org/stable/3792282

[6]: https://econtent.hogrefe.com/doi/10.1027/2151-2604/a000299

[7]: https://www.science.org/doi/10.1126/sciadv.aay3761